Chapter 10 Notes
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This 2 page Class Notes was uploaded by Daniel Hong on Saturday December 12, 2015. The Class Notes belongs to eco 105 at Pace University taught by Mark Weinstock in Fall 2015. Since its upload, it has received 24 views. For similar materials see Principles of Economics: Macroeconomics in Economcs at Pace University.
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Date Created: 12/12/15
Chapter 10 Fiscal Policy Fiscal policy is the federal government changes in government taxes and spending that affect the level of GDP Revenue Neutral its impact on the economy is neither negative nor positive 0 To stimulate the economy the government could increase spending Expansionary Policy Capital Deepening Expansionary Policies government policy actions that lead to increase in aggregate demand Contractionary Fiscal Policy concern is When the economy is overheating going up too quickly hyperin ation in ation being too high 0 Government policy actions that lead to decreases in aggregate demand Our actual real GDP is growing more quickly than our potential GDP is growing Both our actual and potential GDP are both growing If there is spending than it would increase economic growth 0 As the government develops policies to stabilize the economy it needs to take the multiplier into account 0 The total shift in aggregate demand Will be larger than the initial shift Stabilization Policies policy actions taken to move the economy closer to full employment or potential output 0 There are limits to stabilization policy 0 Stay close to the center line Inside Lags the time it takes to formulate a policy Outside Lags the time it takes for the policy to actually work What makes the problem of lags even worse is that economists are not very accurate in forecasting what will happen in the economy The inside lag on fiscal policies can be 18 months or more But the outside lag could realistically be 3 6 months from now from fiscal policy Monetary policies are short Discretionary Spending the spending programs that Congress authorizes on an annual basis Entitlement and Mandatory Spending spending that Congress has authorized by prior law primarily providing support for individuals Social Security a federal government program to provide retirement and a host of other benefits Medicare a federal government health program for the elderly Medicaid a federal and state government health program for the poor Supplyside Economics a school of thought that emphasizes the role that play in the supply of output in the economy Laffer Curve a relationship between the tax rates and tax revenues that illustrates that high tax rates could lead to lower tax revenues if economic activity is severely discouraged Budget Deficit the amount by which government spending exceeds revenues in a given year Budget Surplus the amount by which government revenues exceed government expenditures in a given year Automatic Stabilizers taxes and transfer payments that stabilize GDP without requiring policymakers to take explicit action 0 Deficits are not bad to automatic stabilizers o Deficits are bad for crowding out
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