Macroeconomics 111 - Chapter 12

Macroeconomics 111 - Chapter 12 - Chapter 12: Fiscal Policy...

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Chapter 12: Fiscal Policy Crowding Out - The issue of crowding out is usually raised in the context of increased government spending (G) financed by the issue of debt. Essentially, the government borrows the money it will spend - The governments demand for credit drives up interest rates - Higher interest rates result in higher financing costs for firms, and therefore lower investment spending, offsetting the GDP gains from the increase in government spending - That is, private investment is “crowded out” by debt-financed public spending Fiscal Policy Demand-side policies – policies designed to stimulate or slow aggregate demand Supply-side policies – policies designed to stimulate or slow aggregate demand Discretionary Fiscal Policy – changes in government spending and/or taxation aimed at achieving a policy goal Automatic Stabilizer – an element of fiscal policy that changes automatically as income changes Taxes Two Types of Taxes -Direct Taxes – on individuals and firms. For example, income taxes and value-added taxes
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This note was uploaded on 04/07/2008 for the course ECON 111 taught by Professor H during the Spring '07 term at UConn.

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Macroeconomics 111 - Chapter 12 - Chapter 12: Fiscal Policy...

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