Chapter 12 Fiscal Policy

Chapter 12 Fiscal Policy - Fiscal policy Chapters 12...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Fiscal policy Chapters 12 Crowding-out effect of deficit spending Borrowing crowds out private spending (C+I) Government borrowing puts upward pressure on interest rates Higher interest rates reduce private sector spending (retards capital formation) If financed by foreigners, then NX Foreign investment increases demand for $, putting an upward pressure on the value of the $ Opportunity cost of resources used by government = funds extracted from capital markets C+I G Crowding-in effect of reducing deficits The effect is symmetrical! Reducing deficit spending puts downward pressure on interest rates Explains why restrictive policy will not be fully effective against inflation Also explains why reducing G can have a positive effect in recessions New Classical on Fiscal Policy Deficit spending doesnt stimulate: negated by lower household spending (increase in savings) Deficits imply higher future taxes People will fully recognize the higher future...
View Full Document

This note was uploaded on 04/01/2012 for the course ECON 101 taught by Professor Balaban during the Fall '07 term at UNC.

Page1 / 8

Chapter 12 Fiscal Policy - Fiscal policy Chapters 12...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online