Monetary Policy in International Finance Notes

Monetary Policy in International Finance Notes - Chapter 12...

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Chapter 12 Notes Lump-Sum-Tax Multiplier: Algebra - Case: C, I, & G only expenditures. Lump-sum taxes. - Y = (a - b) x T + l + G 1 - b Y = _ b___ x change in T 1 - b - Since an increase in taxes reduces consumption spending, the lump-sum tax multiplier is negative - Since The MPC is less than one, the lump-sum tax multiplier is smaller in absolute value than the government Fiscal Stimulus: T - Suppose the economy’s full-employment level of output is $15 trillion, actual output is $13 trillion, and the MPC is 0.5. The short-run macro model says that a decrease in lump-sum taxes of $2 trillion would be sufficient to boost spending and output to the full employment level. 11/9 Monetary Policy - Government control over short-term interest rates, the quantity of bank reserves, the money supply, or other variables to promote national macroeconomic goals. - Today, nearly all central banks use short-term interest rates in their operating target . But historically, the quantity of money was importantly used as a central bank target.
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