EC1301_-_Lecture_10_-_Macroeconomic_Demand_Management

EC1301_Lecture_10_ - EC1301 Fiscal Policy and Monetary Policy LECTURE 10 MACROECONOMIC DEMAND MANAGEMENT Connie CHUNG 1 EC1301 Fiscal Policy and

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1 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG LECTURE 10 MACROECONOMIC  DEMAND MANAGEMENT 
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2 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG Part I: Agenda –  Fiscal Policy The Role of Fiscal Policy Fiscal Policy and Aggregate Demand  The Government Budget  The Budget Deficit and Fiscal Policy  Automatic Stabilizers 
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3 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG Objectives Study how governments can use fiscal  policy – changes in  taxes  and  spending   that affect the level of GDP—to  stabilize   the  economy 1. Using  AD-AS model , show how fiscal  policy can  stabilize  the economy  2. Understand the  government budget  –  including spending, revenues, deficits,  and surpluses 
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4 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG Key Terms Automatic stabilizers Budget deficit   Expansionary policies   Budget surplus  Outside lags  Fiscal policy Contractionary policies Stabilization policies  Crowded out  Inside lags
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5 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG Fiscal Policy and  Aggregate Demand Government policies that increase AD are  called  expansionary   policies  Government policies that decrease AD are  called  contractionary   policies
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6 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG Fiscal Policy and  Aggregate Demand (Figure 10.1)
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7 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG The Limits to Stabilization Policies Both expansionary policies and contractionary  policies are examples of  stabilization  policies , actions to  move the economy  closer to full employment or potential  output Stabilization policy is difficult   1. there are  time lags  between  recognition  and  response to  changes  in the economy, and  2. we simply do not know enough about all aspects of the  economy
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8 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG Lags Ideal  stabilization policies  can  dampen  fluctuations Ill-timed  policies can  magnify   fluctuations Inside lags   – time it takes  to formulate a policy Outside lags     time it  takes for the policy to  actually  work
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9 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG Lags Economists use  econometric models  to  replicate the behavior of the economy   mathematically and statistically and to  assist in developing economic forecasts They can also be used to estimate the  length of outside lags
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10 EC1301 Fiscal Policy and Monetary Policy © Connie CHUNG The Government Budget The government budget—the actual  document that describes  what the  government spends and how it pays for  it  
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This note was uploaded on 03/19/2012 for the course ARTS EC1301 taught by Professor Forgot during the Fall '08 term at National University of Singapore.

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EC1301_Lecture_10_ - EC1301 Fiscal Policy and Monetary Policy LECTURE 10 MACROECONOMIC DEMAND MANAGEMENT Connie CHUNG 1 EC1301 Fiscal Policy and

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