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Econ notes for thanksgiving

Econ notes for thanksgiving - 1/19 Fiscal Policy Issues Y=C...

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1/19: Fiscal Policy Issues : _ _ _ _ Y=C + I + G – cT 1 – c (1 – t) 1) G has bigger effect than T 2) Income Taxes are “automatic sterilizers” - multiplier smaller when t goes up -transfers go up when y goes down 3) Budget deficits can be good -good during recession, automatic stabilizer energy -transfers go up, taxes go down. -Raise G, Lower T, lower t, discretionary . public works. Stimulates economy and raises employment levels -Critique of “fine tuning” -government is distorted by political pressure, politics -Crowding out of I -lags, recognition, decision, implement, effectiveness - monetary policy: federal reserve – central bank -Money -“Medium of exchange” -credibility -gold, commodity money, paper and electronic -money not backed by gold, “Fiat” money -Unit of account -store of value -Money Supply: M1 = Currency + Checking Accounts - banking system: -balance sheet, banks have balance sheets, loans = assets, deposits = liabilities -Assets: Loans (L), securities, reserves (R) (deposits at FED, required), -Liabilities: deposits , Borrow, capital – stock 5%
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