New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Fiscal Policy, Chapter 15 Notes

by: Breana Carey

Fiscal Policy, Chapter 15 Notes ECON 2105 040

Marketplace > Georgia State University > Economcs > ECON 2105 040 > Fiscal Policy Chapter 15 Notes
Breana Carey
GPA 3.0
View Full Document for 0 Karma

View Full Document


Unlock These Notes for FREE

Enter your email below and we will instantly email you these Notes for PRINCIPLES OF MACROECONOMICS

(Limited time offer)

Unlock Notes

Already have a StudySoup account? Login here

Unlock FREE Class Notes

Enter your email below to receive PRINCIPLES OF MACROECONOMICS notes

Everyone needs better class notes. Enter your email and we will send you notes for this class for free.

Unlock FREE notes

About this Document

Hey guys! These are last weeks notes, sorry I posted them up so late but here they go!
Elena Andreyeva
Class Notes
Economics, Macroeconomics, fiscal policy





Popular in Economcs

This 6 page Class Notes was uploaded by Breana Carey on Sunday April 10, 2016. The Class Notes belongs to ECON 2105 040 at Georgia State University taught by Elena Andreyeva in Spring 2016. Since its upload, it has received 16 views. For similar materials see PRINCIPLES OF MACROECONOMICS in Economcs at Georgia State University.


Reviews for Fiscal Policy, Chapter 15 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 04/10/16
Chapter 29/16 Fiscal Policy Sunday, April 10, 2016 23:42 Fiscal Policy  Fiscal policy means to use the government spending and taxes to influence the economy,  Expansionary fiscal policy occurs when the government spending increases or a  decrease in taxes to stimulate the economy.  With aggregate demand a recession can occur with a drop in aggregate demand (red line)   If aggregate demand decreases and shifts over to the B the unemployment rate will fall under the natural  rate (Y*)   We can wait for unemployment and SRAS to shift  back to its original spot or we can implement  government policy to shift aggregate demand back  to the next level ­­­ expansionary policy.   Government directly corresponds with aggregate  demand so when consumption decreases we  increase government to bring aggregate demand  back to full output.  NOTE: decrease in taxes also increases aggregate demand because people have more  money to spend.  o 2 examples of expansionary policy are: (1) first signed in 02/2008 by George bush  was the economic stimulus act. (2) American and reinvestment recovery act of 2009  and both were centered around government spending  o Expansionary policy inevitably leads to economic change because you will see  budget deficits rise   Contractionary fiscal policy occurs when the government decreases spending or  increases taxes to slow economic expansion o 2 reasons that the government would want to decrease aggregate demand  1. Expansionary fiscal policy will created a budget deficit during recessions   A increase in taxes or a decrease with spending during government expansion can want to eliminate budget deficit.  a. The government might want to reduce aggregate demand if  it believes that the economy is expanding too much.   When policy makers believe the economy is  producing beyond its means you have to  increase with the price level The use of fiscal policy to counter act  the business cycle fluctuations are called countercyclical fiscal policy.   Multipliers are when increases in  income generally lead to increases in  consumption  The  margin propensity to  consume is the portion of  additional income that is spent on  consumption  The mpc will not be constant with  all people and is a fraction from  between 0 and 1  The  spending multiplier  will tell  us the total impact spending from a initial change of given amount.  The greater the MPC is the greater  the multiplier   NOTE: Sometimes the multiplier is called the 'Keynesian' or the 'fiscal multiplier'  Shortcomings of Fiscal Policy  Time lags: there are three lags that accompany policy choices 1) recognition lag 2)  implementation lag 3) impact lag   1. Recognition lag : it's difficult because it's hard to know when the economy is  going to increase or decrease because it takes literally time to know our numbers  regarding the economy. 2. Implementation lag : it takes time to implement fiscal policy because many  choices have to go through things like senate and other people before the actual  policy can be applied.  3. Impact lag : it takes time for complete effects of fiscal policy to take place ­­ it  takes time for it to ripple through the economy and for anyone to really benefit from  it.   One way we can alleviate potential lags is by placing programs that will automatically  adjust the government  1. Automatic stabilizers are government programs that automatically implement   counter cyclical policy   Example: progressive income tax rates, welfare programs 2. And can eliminate recognition lags and implementation lags o Crowding out occurs when private spending decreases in response to increases in government spending 1. When private spending decreases because of government spending increasing we  have a situation where crowding out has occurred.  o The new classical critique of fiscal policy asserts that a increase in government  and a decrease in taxes are largely offset by a increase in savings because people know that  they’ll have to pay higher taxes eventually.  1. Supply side of fiscal policy involves the use of government spending and takes  effects supply or production side of the economy.   The goal of fiscal policy is to shift long run aggregate  supply   Many fiscal initiatives that focus on LRAS  1. Research and development 2. Education policies 3. Lower corporate tax rates  4. Lower marginal tax rates  All characteristics have two incentives (1) to increase  incentives of production activities (2) each initiative takes time  to aggregate supply  1. Marginal income tax rates are important because we have notices that lowering marginal income tax rates is one  way we can affect the supply side of the economy  2. The laffer curve  Income tax revenue = tax rate x revenue   The laffer curve named after economist Arthur  laffer illustrates the relationship between tax rates  and tax revenue.   Increasing tax rates lead to increasing tax revenues  and an increase in the tax rate reduces income  enough so that tax revenue falls  eras SRAs, x H Shas, 10600--0 95 to 90--9°. + n c . A b ADZ . SAAS •105 € 116 -too 100--40004/ AD, ADZ MAs LRASl ->


Buy Material

Are you sure you want to buy this material for

0 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Allison Fischer University of Alabama

"I signed up to be an Elite Notetaker with 2 of my sorority sisters this semester. We just posted our notes weekly and were each making over $600 per month. I LOVE StudySoup!"

Bentley McCaw University of Florida

"I was shooting for a perfect 4.0 GPA this semester. Having StudySoup as a study aid was critical to helping me achieve my goal...and I nailed it!"

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.