Due to autonomy of Fed this is less likely to occur in the US today If used

Due to autonomy of fed this is less likely to occur

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Due to autonomy of Fed, this is less likely to occur in the U.S. today. If used, tends to be inflationary, resulting in a reduction in C.
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Discretionary fiscal policy vs. automatic stabilizers Discretionary fiscal policy: changes in government spending, taxes, and/or transfer payments to achieve a macroeconomic policy goal Automatic stabilizers: automatic increase in transfers and tax reductions as income falls (the reverse holds when income rises) Examples: unemployment compensation, income tax, welfare programs. Automatic stabilizers reduce the value of the multiplier.
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Tax structures Proportional tax: Tax / income is constant as income rises Progressive tax: Tax / income rises as income rises Regressive tax: Tax / income declines as income rises
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Deficits and debt Deficit = G – T = amount by which government spending exceeds net taxes Debt = total stock of outstanding government bonds Deficit = a flow variable Debt = a stock variable
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Deficits, interest rates, and investment Loanable funds model
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Demand for loans
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Supply of loans
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Equilibrium
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Increase in deficit
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Costs of deficit Crowding out: higher interest rates result in less investment Higher deficit results in currency appreciation and a decline in net exports (X) Interest payments – redistribution of income Regressive? Foreign debt holdings
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Foreign fiscal policy Share of GDP devoted to G is smaller in the U.S. than in most developed economies Value-added taxes are commonly used in most other developed economies
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