Lecture 16 Fiscal Policy

Lecture 16 Fiscal Policy - effect on equilibrium real GDP...

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Fiscal Policy Fiscal policy: Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives. - We will only consider changes in lump-sum taxes, not changes in tax rates. Multiplier effect The series of induced increases in consumption, investment, and import spending that results from an initial increase in autonomous expenditures.
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Fiscal Policy Federal Government Expenditures in 2008.
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Fiscal Policy Federal Government Revenues in 2008.
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Fiscal Multipliers The ratio of the change in equilibrium real GDP to the initial change in government purchases is known as the government purchases multiplier : The expression for the tax multiplier is: Increases in government purchases and cuts in taxes have a positive multiplier effect on equilibrium real GDP. Decreases in government purchases and increases in taxes also have a multiplier
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Unformatted text preview: effect on equilibrium real GDP, but in this case, the effect is negative Government Spending Multiplier Simple Model: Assume that all components of AE are autonomous except for consumption. Full Model: Tax Multiplier Remember that Simple Model: Assume that all components of AE are autonomous except for consumption. Full Model: The Balanced Budget Multiplier Balanced Budget: Simple Model: Assume that all components of AE are autonomous except for consumption. Full Model: Automatic Stabilizers and Leakages Automatic stabilizers: Government spending and taxes that automatically increase or decrease along with the business cycle. Leakages: 1) Saving Leakage 2) Inventory Leakage 3) Import Leakage...
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Lecture 16 Fiscal Policy - effect on equilibrium real GDP...

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