CHAPTER 16 PF MACROECONOMICS
CHAPTER 16 PF MACROECONOMICS 2105 025
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This 2 page Class Notes was uploaded by Christina Smith on Sunday March 6, 2016. The Class Notes belongs to 2105 025 at Georgia State University taught by Mr. Apperson in Winter 2016. Since its upload, it has received 12 views. For similar materials see Macroeconomics in Economcs at Georgia State University.
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Date Created: 03/06/16
CHAPTER 16 OF MACROECONOMICS Fiscal Policy When the government increases spending or decreases taxes to stimulate the economy toward expansion. Contra Dictionary Fiscal Policy Occurs when the government decreases or increases taxes to slow down economic expansion. Countercyclical fiscal policy Fiscal policy that seeks to come to rack business cycle fluctuations. The marginal propensity The portion of additional income that is spent on consumption. The spending multiplier A formula to determine the total impact of spending for an initial change of a given amount. Automatic stabilizers Government programs that automatically implement countercyclical fiscal policy in response to economic conditions. EX: Progressive income tax rates, taxes on corporate profits, unemployment compensation, welfare programs Crowding-Out Occurs want to private spending falls in supply increases in government spending. New classical critique Fiscal policy that asserts that increases in government spending and decreases in taxes are largely offset by increases in savings. Supply-Side Fiscal Policy Involves the use of government spending and taxes to affect the production side of the economy. Laffer –Curve An illustration of the relationship between tax rates and tax revenue. Shortcomings of Fiscal Policy: Time Lags: the effects of fiscal policy may be delayed by lags in recognition implementation and effectiveness. 1. Recognition Lag 2. Implementation Lag 3. Impact Lag Lags can cause Fiscal Policy to be delayed for a year or 18 months. Crowding-Out: Government spending can serve as a substitute for private spending. Even partial crowding out reduces the impact of physical stimulus Saving Shifts: in response to increases in government spending or lower taxes people may increase their current savings to help paper inevitably hire preacher Texas Notes: Marginal Propensity to Consume= change in consumption/ change in income Spending Multiplier= 1/(1-MPC)