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Unformatted text preview: oods and services. A tax cut Supply shock An event that influences production capacity or production costs. Higher levels of education ⇒ productivity↑ ⇒ production costs↓(perhaps). Government influences
Government influences Fiscal Policy government spending and taxing actions Stimulating the economy through Gov spending Slowly implemented Gov purchasing multiplier 1:1 Taxes ⇑ ⇒ Demand ⇓ Taxes ⇓ ⇒ Demand ⇑ but because of savings by
less than 1:1 US Total Debt
US Total Debt Source: National Debt: CNBC Explains, Wednesday, 29 Jun 2011 Limitations of fiscal policy
Limitations of fiscal policy Recognition delay Administrative delay Impact delay Monetary Policy
Monetary Policy manipulation of the money supply to influence economic activity (FFR) Tools of monetary policy Open market operations( federal funds rate) Discount rate Reserve requirements Inflation
Persistent P⇑ on most goods and services
Demand- pull inflation results from MS ⇑ , Gov ⇑ , Consumer ⇑ GDP ⇑ above full employment GDP Will persist until Fed tightens money Cost - Push Inflation:
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This document was uploaded on 02/05/2014.
- Fall '14