{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Tax Multiplier and Equilibrium

# Tax Multiplier and Equilibrium - Tax Multiplier and...

This preview shows pages 1–2. Sign up to view the full content.

Tax Multiplier and Equilibrium Government Spending: -An eighth of spending is for defense (Discretionary) -The half of the rest is non-discretionary spending (Medicade, Social security, etc.: has to pay these by law, and cannot be cut). -Discretionary spending: education, infrastructure. Xn: -Xn= net exports= exports-imports -National income of an economy and the GDP are identical terms. Lecture: November 10 th 1. What is the notion of equilibrium in the context of a national economy? 2. If we do have equilibrium is the notion of equilibrium synonomous with perfection? 3. If we do not, is necessarily a bad thing? A private economy, and closed one (No government spending or net exports) GDP= NI (supply) C S I AE (demand) 1. Full Capacity 2.Recession 410 B 405 5 20 425 Inflation (DP) GDP increase 1. Full capacity: needs idle resources to increase GDP, yet since it is on the PPF line there are none. There will be a demand pull inflationary response. 2. Recession: GDP uses idle resources available to increase, and supply catches up to demand (AE). Unemployment will go down. 470 450 20 20 470 Stability (S=D) Stability (S=D) 510 480 30 20 500 empl + gdp decr. Worse -Equilibrium does necessarily mean perfection, it means stability. The economy is not moving. Multiplier -Initial payment: the first producer takes some money, but spends the rest. Therefore, the original GDP increase is increased more by the second spending. Then, the next producer takes some money and then spends the rest, continuing this trend. However, the GDP continues to increase. Therefore, the initial payment sparks a layered spending increasing the GDP more than the initial payment is worth by even two or three times.

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern