Macroeconomic Issues and Policy. Stabilization Policy. Time Lags Regarding Monetary and Fiscal Policy
|
|
- Shana Wilkerson
- 6 years ago
- Views:
Transcription
1 C H A P T E R 15 Macroeconomic Issues and Policy Prepared by: Fernando Quijano and Yvonn Quijano Stabilization Policy Stabilization policy describes both monetary and fiscal policy, the goals of which are to smooth out fluctuations in output and employment and to keep prices as stable as possible. 2of 40 Time Lags Regarding Monetary and Fiscal Policy Time lags are delays in the economy s response to stabilization policies. 3of 40
2 Two Possible Time Paths for GDP Path A is less stable it varies more over time than path B. Other things being equal, society prefers path B to path A. 4of 40 Stabilization: The Fool in the Shower Attempts to stabilize the economy can prove destabilizing because of time lags. Milton Friedman likened these attempts to a fool in the shower. The government is constantly stimulating or contracting the economy at the wrong time. 5of 40 Stabilization: The Fool in the Shower An expansionary policy that should have begun to take effect at point A does not actually begin to have an impact until point D, when the economy is already on an upswing. 6of 40
3 Stabilization: The Fool in the Shower Hence, the policy pushes the economy to points F and G (instead of F and G). Income varies more widely than it would have if no policy had been implemented. 7of 40 Recognition Lags The recognition lag refers to the time it takes for policy makers to recognize the existence of a boom or a slump. 8of 40 Implementation Lags The implementation lag is the time it takes to put the desired policy into effect once economists and policy makers recognize that the economy is in a boom or a slump. The implementation lag for monetary policy is generally much shorter than for fiscal policy. 9of 40
4 Response Lags The response lag is the time it takes for the economy to adjust to the new conditions after a new policy is implemented; the lag that occurs because of the operation of the economy itself. The delay in the multiplier of government spending occurs because neither individuals nor firms revise their spending plans instantaneously. 10 of 40 Monetary Policy To make the monetary policy story realistic, two key points must be added: In practice, the Fed targets the interest rate rather than the money supply. The interest rate value that the Fed chooses depends on the state of the economy. 11 of 40 Targeting the Interest Rate The Fed can pick a money supply value and accept the interest rate consequences Or The Fed can pick an interest rate value and accept the money supply consequences. 12 of 40
5 The Fed s Response to the State of the Economy The Fed is likely to lower the interest rate (and thus increase the money supply) during times of low output and low inflation. 13 of 40 The Fed s Response to the State of the Economy When the economy is on the flat portion of the AS curve, an increase in the money supply will lead to an increase in output with very little increase in the price level. 14 of 40 The Fed s Response to the State of the Economy The opposite is also true: The Fed is likely to increase the interest rate (and thus decrease the money supply) during times of high output and high inflation. 15 of 40
6 The Fed s Response to the State of the Economy When the economy is on the relatively steep portion of the AS curve, contraction of the money supply will lead to a decrease in the price level, with little decrease in output. 16 of 40 The Fed s Response to the State of the Economy Stagflation is a more difficult problem to solve. If the Fed lowers the interest rate, output will rise, but so will the inflation rate (which is already too high). If the Fed increases the interest rate, the inflation rate will fall, but so will output (which is already too low). 17 of 40 I I 1990 I I 1991 I I 1992 I I 1993 I I Data for Selected Variables for the Period Data for Selected Variables for the Period DATE 1989 REAL GDP GROWTH UNEMPL INFL THREE- MONTH T-BILL RATE AAA BOND RATE FED. GOV. SURPLUS SURPLUS/GDP of 40
7 1994 I I 1995 I I 1996 I I 1997 I I 1998 I I Data for Selected Variables for the Period Data for Selected Variables for the Period DATE REAL GDP GROWTH UNEMPL INFL AAA BOND RATE FED. GOV. SURPLUS SURPLUS/GDP of I I 2000 I I 2001 I I 2002 I Data for Selected Variables for the Period Data for Selected Variables for the Period DATE I 2003 I REAL GDP GROWTH UNEMPL Note: The inflation rate is the percentage change in the GDP price deflator INFL THREE- MONTH T-BILL RATE THREE- MONTH T-BILL RATE AAA BOND RATE FED. GOV. SURPLUS SURPLUS/GDP of 40 The Recession After the Fed became convinced that a recession was at hand, it responded by engaging in open market operations to lower interest rates. Inflation was not a problem, so the Fed could expand the economy without worrying about inflationary pressures. 21 of 40
8 During this period, inflation was not a problem, so the Fed had room to stimulate the economy and kept its expansionary policy. By the end of 1993 the Fed was worried about inflation problems in the future, and decided to begin slowing down the economy. 22 of Inflation did not become a problem after 1994, and the Fed lowered interest rates. The three-month Treasury bill rate remained at roughly percent throughout 1996 and During this period, the economy experienced good growth, low unemployment, low inflation, and a balanced government budget! 23 of Based on concerns about the Asian financial crisis, the Fed lowered the bill rate to 4.3 percent in the fourth quarter of The Asian crisis did not affect the U.S. economy very much, and the Fed began raising the bill rate on fears that the economy might be overheating. 24 of 40
9 A recession was officially declared in The Fed responded by perhaps the most expansionary policy in its history. Many expected that the attacks on September 11, 2001 would extend the recession, but the growth rate of output was high enough to keep the unemployment rate roughly unchanged. 25 of 40 Fiscal Policy: Deficit Targeting Many fiscal policy discussions center around the size of the federal government surplus or deficit. In the last decade, we have seen a substantial deficit turn into a surplus (between 1998 and 2001) and back into a deficit! 26 of 40 Fiscal Policy: Deficit Targeting The Gramm-Rudman- Hollings Bill, passed by the U.S. Congress and signed by President Reagan in 1986, is a law that set out to reduce the federal deficit by $36 billion per year, with a deficit of zero slated for In practice, these targets never came close to being achieved. 27 of 40
10 The Effects of Spending Cuts on the Deficit A cut in government spending causes the economy to contract. Both the taxable income of households and the profits of firms fall. The deficit tends to rise when GDP falls, and tends to fall when GDP rises. 28 of 40 The Effects of Spending Cuts on the Deficit The deficit response index (DRI) is the amount by which the deficit changes with a $1 change in GDP. If the DRI equals.22, for example, the deficit rises by $0.22 billion for each $1 billion decrease in GDP. 29 of 40 Economic Stability and Deficit Reduction Spending cuts must be larger than the deficit reduction we wish to achieve. Congress has two options: 1. Choose a target deficit and adjust government spending and taxation to achieve this target, or 2. Decide how much to spend and tax regardless of the consequences on the deficit. 30 of 40
11 Economic Stability and Deficit Reduction A negative demand shock is something that causes a negative shift in consumption or investment schedules or that leads to a decrease in U.S. exports. 31 of 40 Economic Stability and Deficit Reduction Automatic stabilizers refer to revenue and expenditure items in the federal budget that automatically change with the economy in such a way as to stabilize GDP. 32 of 40 Economic Stability and Deficit Reduction Automatic destabilizers refer to revenue and expenditure items in the federal budget that automatically change with the economy in such a way as to destabilize GDP. 33 of 40
12 Deficit Targeting as an Automatic Destabilizer 34 of 40 Fiscal Policy Since 1990 The average tax rate rose sharply under President Clinton and fell sharply under President Bush. The deficit is a concern when tax rates are falling and spending is rising. 35 of 40 Federal Personal Income Taxes as a Percent of Taxable Income, 1990 I of 40
13 Federal Government Consumption Expenditures as a Percent of GDP, 1990 I of 40 Federal Transfer Payments and Grants-in- Aid as a Percent of GDP, 1990 I of 40 Federal Interest Payments as a Percent of GDP, 1990 I of 40
14 Review Terms and Concepts automatic destabilizer automatic stabilizer deficit response index (dri( dri) Gramm-Rudman Rudman-Hollings Bill implementation lag negative demand shock recognition lag response lag stabilization policy time lags 40 of 40
Financial Crises, Stabilization, and Deficits
PART IV FURTHER MACROECONOMICS ISSUES Financial Crises, Stabilization, and Deficits 15 CHAPTER OUTLINE The Stock Market, the Housing Market, and Financial Crises Stocks and Bonds Determining the Price
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F. N. Gregory Mankiw. Introduction
C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F Economics N. Gregory Mankiw Introduction This chapter focuses on the short-run effects of fiscal
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand. Premium PowerPoint Slides by Ron Cronovich
C H A P T E R 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand Economics P R I N C I P L E S O F N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2009 South-Western, a part
More informationCH 31 sample questions
Class: Date: CH 31 sample questions Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The federal budget is defined as a. a monthly statement of expenditure
More informationIn this chapter, look for the answers to these questions
In this chapter, look for the answers to these questions How does the interest-rate effect help explain the slope of the aggregate-demand curve? How can the central bank use monetary policy to shift the
More informationLesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand
Lesson 12 The Influence of Monetary and Fiscal Policy on Aggregate Demand Henan University of Technology Sino-British College Transfer Abroad Undergraduate Programme 0 In this lesson, look for the answers
More information1 of 24. Modern Macroeconomics: From the Short Run to the Long Run. 2 of 24. They could not have differed more sharply on economic theory and policy.
1 of 24 2 of 24 the Long Run They could not have differed more sharply on economic theory and policy. P R E P A R E D B Y FERNANDO QUIJANO, YVONN QUIJANO, AND XIAO XUAN XU 3 of 24 1 A P P L Y I N G T H
More information11/25/2018. FISCAL POLICY Government Spending and Tax Policy Part 2. Supply-Side Effects of Fiscal Policy What about Budget Deficits?
13 FISCAL POLICY Government Spending and Tax Policy Part 2 Supply-Side Effects of Fiscal Policy What about Budget Deficits? Cut T and hold G fixed => increase in budget deficit Government needs to borrow
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand
Chapter 32 The Influence of Monetary and Fiscal Policy on Aggregate Demand Test B 1. Of the effects that help explain why the U.S. aggregate demand curve slopes downward the a. wealth effect is most important
More informationMacroeconomics. The Influence of Monetary and Fiscal Policy on Aggregate Demand. Introduction
C H A P T E R 21 The Influence of Monetary and Fiscal Policy on Aggregate Demand P R I N C I P L E S O F Macroeconomics N. Gregory Mankiw Premium PowerPoint Slides by Ron Cronovich 2010 South-Western,
More informationIntroduction to Macroeconomics. Introduction to Macroeconomics
C H A P T E R 17 Introduction to Macroeconomics Prepared by: Fernando Quijano and Yvonn Quijano Introduction to Macroeconomics Microeconomics examines the behavior of individual decision-making units business
More informationMacroeconomics Mankiw 6th Edition
N. Gregory Mankiw Lecture notes, ECON 1150 Macroeconomics Mankiw 6th Edition 21 & 22 The Influence of Monetary and Fiscal Policy on Aggregate Demand Premium PowerPoint Slides by Ron Cronovich 2012 UPDATE
More informationFiscal and Monetary Policy Mix
Fiscal and Monetary Policy Mix How does the government stabilize the economy? The government has two different tool boxes it can use: 1. Fiscal Policy- Actions by Congress and the president to adjust to
More informationChapter 7. Fiscal Policy. These slides supplement the textbook, but should not replace reading the textbook
Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook Who were the classical economists? A group of the 18 th and 19 th centuries, including Adam Smith
More informationChapter 10. Fiscal Policy. Macroeconomics: Principles, Applications, and Tools NINTH EDITION
Macroeconomics: Principles, Applications, and Tools NINTH EDITION Chapter 10 Fiscal Policy Learning Objectives 10.1 Explain how fiscal policy works using aggregate demand and aggregate supply. 10.2 Identify
More information1. When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:
1. When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: A. Fiscal policy B. Incomes policy C. Monetary policy D. Employment policy 2. When the Federal
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
21 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory
More informationCost Shocks in the AD/ AS Model
Cost Shocks in the AD/ AS Model 13 CHAPTER OUTLINE Fiscal Policy Effects Fiscal Policy Effects in the Long Run Monetary Policy Effects The Fed s Response to the Z Factors Shape of the AD Curve When the
More informationEcon 102 Final Exam Name ID Section Number
Econ 102 Final Exam Name ID Section Number 1. Assume that the economy is contracting and unemployment is rising. Which of the following would be a logical explanation for a sudden fall in the unemployment
More informationUNITS 12-13: FIXING AN ECONOMY: FISCAL & MONETARY POLICY WORKSHEET USE THE LECTURE NOTES TO ANSWER THE FOLLOWING QUESTIONS (10 pts each)
DUE DATE: NAME: UNITS 12-13: FIXING AN ECONOMY: FISCAL & MONETARY POLICY WORKSHEET USE THE LECTURE NOTES TO ANSWER THE FOLLOWING QUESTIONS (10 pts each) 1. John Keynes suggested that government should
More informationChapter 25 Fiscal Policy Principles of Economics in Context (Goodwin, et al.)
Chapter 25 Fiscal Policy Principles of Economics in Context (Goodwin, et al.) Chapter Overview This chapter introduces you to a formal analysis of fiscal policy, and puts it in context with real-world
More informationThe influence of Monetary And Fiscal Policy on Aggregate Demand
Lecture 11 The influence of Monetary And Fiscal Policy on Aggregate Demand Prof. Samuel Moon Jung Introduction Earlier chapters covered: the long-run effects of fiscal policy on interest rates, investment,
More informationSynthesis for Macroeconomics Summary of Aggregate Demand and Aggregate Supply Relevance of Fiscal and Monetary Policy. Fernando Nandy T. Aldaba, Ph.
Synthesis for Macroeconomics Summary of Aggregate Demand and Aggregate Supply Relevance of Fiscal and Monetary Policy Fernando Nandy T. Aldaba, Ph.D Senior Executives Class Batc 3 Sinagtala APPLIED PUBLIC
More informationPrinciple of Macroeconomics, Summer B Practice Exam
Principle of Macroeconomics, Summer B 2017 Practice Exam 1) If real GDP in a small country in 2015 is $8 billion and real GDP in the same country in 2016 is $8.3 billion, the growth rate of real GDP between
More informationMacroeconomics Sixth Edition
N. Gregory Mankiw Principles of Macroeconomics Sixth Edition 21 The Influence of Monetary and Fiscal Policy on Aggregate Demand Premium PowerPoint Slides by Ron Cronovich 2012 UPDATE In this chapter, look
More informationMacroeconomics, Cdn. 4e (Williamson) Chapter 1 Introduction
Macroeconomics, Cdn. 4e (Williamson) Chapter 1 Introduction 1) Which of the following topics is a primary concern of macro economists? A) standards of living of individuals B) choices of individual consumers
More informationInternational Money and Banking: 15. The Phillips Curve: Evidence and Implications
International Money and Banking: 15. The Phillips Curve: Evidence and Implications Karl Whelan School of Economics, UCD Spring 2018 Karl Whelan (UCD) The Phillips Curve Spring 2018 1 / 26 Monetary Policy
More informationU. S. Productivity Growth:
Macro Lecture 12: Late 1990s, the 2000s, and Mortgages Productivity Growth: 1990-2004 Most economists expected the general decline in productivity growth 8 occurring during the 1950 s, 1960 s, 1970 s,
More informationTHE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND
20 THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND LEARNING OBJECTIVES: By the end of this chapter, students should understand: the theory of liquidity preference as a short-run theory
More informationRyerson University Department of Economics ECN 204 MidtermTwo W12. Name: Student No:
Ryerson University Department of Economics ECN 204 MidtermTwo W12 Instructor: Prof. T.Barbiero Duration: 50 Minutes Name: Student No: Choose the BEST answer and recorded it on both your scanner sheet and
More informationAggregate Supply and Aggregate Demand
Aggregate Supply and Aggregate Demand ECO 301: Money and Banking 1 1.1 Goals Goals Specific Goals Be able to explain GDP fluctuations when the price level is also flexible. Explain how real GDP and the
More informationName: Days/Times Class Meets: Today s Date:
Name: _ Days/Times Class Meets: Today s Date: Macroeconomics, Fall 2007, Final Exam, several versions, December Read these Instructions carefully! You must follow them exactly! I) On your Scantron card
More informationAGGREGATE SUPPLY, AGGREGATE DEMAND, AND INFLATION: PUTTING IT ALL TOGETHER Macroeconomics in Context (Goodwin, et al.)
Chapter 13 AGGREGATE SUPPLY, AGGREGATE DEMAND, AND INFLATION: PUTTING IT ALL TOGETHER Macroeconomics in Context (Goodwin, et al.) Chapter Overview This chapter introduces you to the "Aggregate Supply /Aggregate
More informationBusiness Cycle Theory
Business Cycle Theory Changes in Business Activity Economics, Unit: 06 Lesson: 01 Objectives 1.Describe phases of business cycle 2.Identify and explain the factors that cause business cycles 3.Analyze
More informationDisputes In Macroeconomics
No G G & T 3-5% Monetary Rule Expectations negate fiscal and monetary Policy. Adam Smith John M. Keynes Milton Friedman Classicals Keynesians Monetarists Robert Lucas Get the G off of our backs. Ronald
More informationEconomic Fundamentals
CHAPTER 5 Economic Fundamentals INTRODUCTION Economics, put simply, is the study of shortages supply vs. demand. As the demand for a product or service rises, the price of those goods or services will
More informationThe Influence of Monetary and Fiscal Policy on Aggregate Demand. Lecture
The Influence of Monetary and Fiscal Policy on Aggregate Demand Lecture 10 28.4.2015 Previous Lecture Short Run Economic Fluctuations Short Run vs. Long Run The classical dichotomy and monetary neutrality
More informationIntroduction. Learning Objectives. Learning Objectives. Chapter 13. Fiscal Policy
Chapter 13 Introduction Countries belonging to the European Monetary Union have agreed to follow a path of fiscal discipline, keeping government spending in line with tax receipts. Under what conditions
More informationIII. 9. IS LM: the basic framework to understand macro policy continued Text, ch 11
Objectives: To apply IS-LM analysis to understand the causes of short-run fluctuations in real GDP and the short-run impact of monetary and fiscal policies on the economy. To use the IS-LM model to analyse
More information12.3 Issues in Fiscal Policy L E A R N I N G O B JE C T I V E S
the past half-century and why post World War II business cycles have been in the moderate range. In particular, she argues that the Fed has generally been too expansionary when the economy was growing,
More informationMACROECONOMICS - CLUTCH CH FISCAL POLICY.
!! www.clutchprep.com CONCEPT: INTRODUCTION TO FISCAL POLICY Fiscal Policy involves setting the level of and by Focus specifically on spending and taxes of government > Government spending is an important
More informationModule 19 Equilibrium in the Aggregate Demand Aggregate Supply Model
What you will learn in this Module: The difference between short-run and long-run macroeconomic equilibrium The causes and effects of demand shocks and supply shocks How to determine if an economy is experiencing
More informationMacroeconomics, Spring 2007, Final Exam, several versions, Early May
Name: _ Days/Times Class Meets: Today s Date: Macroeconomics, Spring 2007, Final Exam, several versions, Early May Read these Instructions carefully! You must follow them exactly! I) On your Scantron card
More informationAggregate Demand and Aggregate Supply. Chapter Objectives. AD AS Model
10 Demand and Supply 10-1 Chapter Objectives Demand and the Factors That Cause it to Change. Supply and the Factors That Cause it to Change. How AD and AS Determine an Economy s and the Level of Real GDP.
More informationLecture 12: Economic Fluctuations. Rob Godby University of Wyoming
Lecture 12: Economic Fluctuations Rob Godby University of Wyoming Short-Run Economic Fluctuations Economic activity fluctuates from year to year. In some years, the production of goods and services rises.
More informationEcon 102 Exam 2 Name ID Section Number
Econ 102 Exam 2 Name ID Section Number 1. In a closed economy government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $110 billion this year. Investment spending
More informationFinal Examination Semester 2 / Year 2012
Final Examination Semester 2 / Year 2012 COURSE : ECONOMICS COURSE CODE : ECON1023 TIME : 2 1/2 HOURS DEPARTMENT : IT AND JOURNALISM & COMMUNICATION STUDIES LECTURER : CHING YANN PENG Student s ID : Batch
More information7. Refer to the above graph. It depicts an economy in the: A. Immediate short run B. Short run C. Immediate long run D. Long run
CHAPTER 29 1. When the price level decreases: A. The demand for money falls and the interest rate falls B. Holders of financial assets with fixed money values decrease their spending C. Holders of financial
More informationECON 3150: Exam 2 study guide
ECON 3150: Exam 2 study guide July 26, 2015 Unemployment 1. Define the unemployment rate 2. Define the labor force participation rate 3. Know historic LF participation rate trends in the US 4. Why has
More informationThe text was adapted by The Saylor Foundation under the CC BY-NC-SA without attribution as requested by the works original creator or licensee
The text was adapted by The Saylor Foundation under the CC BY-NC-SA without attribution as requested by the works original Saylor Link: http://www.saylor.org/books/ 1 12.2 The Use of Fiscal Policy to Stabilize
More informationchapter: Aggregate Demand and Aggregate Supply Aggregate Demand The Aggregate Demand Curve The Aggregate Demand Curve
>> chapter: 1 Demand and Supply Krugman/Wells WHAT YOU WILL LEARN IN THIS CHAPTER " How the demand curve illustrates the relationship between the and the quantity of output demanded in the economy " How
More informationUnemployment that occurs at the natural rate of output is called:
ECON 1A Macroeconomics Lecture Notes: Chapter 11 - Aggregate Supply Aggregate Supply in the Short Run AS - relationship between the economy s price level and Assuming: Technology is fixed. Labor & AS:
More informationFISCAL POLICY* Chapter. Key Concepts
Chapter 15 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s expenditures and tax revenues. Using the federal budget to achieve macroeconomic
More informationUse the following to answer question 15: AE0 AE1. Real expenditures. Real income. Page 3
Chapter 10 1. An example of an autonomous consumption policy is a policy that A) lowers tax rates to stimulate additional consumer spending. B) makes credit more widely available to consumers in order
More informationAutomatic Stabilizers
Automatic Stabilizers By: OpenStaxCollege The millions of unemployed in 2008 2009 could collect unemployment insurance benefits to replace some of their salaries. Federal fiscal policies include discretionary
More informationChapter 11 Fiscal Policy, Deficits, and Debt
Chapter Overview Chapter 11 Fiscal Policy, Deficits, and Debt This chapter explores the tools of government stabilization policy in terms of the aggregate demandaggregate (AD-AS) model. Next, fiscal policy
More informationLecture 22. Aggregate demand and aggregate supply
Lecture 22 Aggregate demand and aggregate supply By the end of this lecture, you should understand: three key facts about short-run economic fluctuations how the economy in the short run differs from the
More informationSyllabus item: 113 Weight: 3
Macroeconomics - 2.4 Fiscal policy Syllabus item: 113 Weight: 3 113. Sources of government revenue IB Question Explain that the government earns revenue primarily from taxes (direct and indirect), as well
More informationA. unchanged decrease B. surplus decrease C. unchanged no change D. surplus increase E. unchanged increase A. A B. B C. C D. D E. E.
AP Macroeconomics Test (Answers on last Page) 1. Which of the following correctly describes the components of Aggregate Demand? A. Consumption expenditures + Investment expenditures + Government expenditures
More information23/03/2012. Government Budgets
In 2007, the federal government spent 15 cents of each dollar Canadians earned and collected 16 cents of each dollar earned in taxes. So the government planned a surplus of 1 cent on every dollar earned.
More informationWhat Is Fiscal Policy?
Fiscal Policy What Is Fiscal Policy? Fiscal policy is the federal government s use of taxing and spending to keep the economy stable. The tremendous flow of cash into and out of the economy due to government
More informationPractice Problems 30-32
Practice Problems 30-32 1. The budget balance is calculated as: A. T G TR B. T + G TR C. T G + TR D. T + G + TR E. TR T G 2. The government budget balance equals: A. Taxes + Government purchases + Government
More informationAQA Economics A-level
AQA Economics A-level Macroeconomics Topic 2: How the Macroeconomy Works, Circular Flow of Income, AD- AS Analysis and Related Concepts 2.3 The determinants of aggregate demand Notes Aggregate demand is
More informationmacro macroeconomics Government Debt (chapter 15) N. Gregory Mankiw
macro Topic 14: (chapter 15) macroeconomics fifth edition N. Gregory Mankiw PowerPoint Slides by Ron Cronovich 2002 Worth Publishers, all rights reserved In this chapter you will learn about the size of
More information= C + I + G + NX = Y 80r
Economics 285 Chris Georges Help With ractice roblems 5 Chapter 12: 1. Questions For Review numbers 1,4 (p. 362). 1. We want to explain why an increase in the general price level () would cause equilibrium
More information10. Fiscal Policy and the Government Budget
10. Fiscal Policy and the Government Budget 1 The Government Budget The government s budget is affected by: Government spending (outlay) Tax revenue (income) 2 Government Spending Major components of government
More informationIntroduction. ECON204 Notes. Response to the GFC Crisis Monetary policy Cut interest rates Quantitative easing
Introduction ECON204 Notes Response to the GFC Crisis Monetary policy Cut interest rates Quantitative easing Fiscal policy Governments spent and borrowed a lot Fiscal deficits funded by debt Many have
More informationFISCAL POLICY* Chapt er. Key Concepts
Chapt er 13 FISCAL POLICY* Key Concepts The Federal Budget The federal budget is an annual statement of the government s outlays and receipts. Using the federal budget to achieve macroeconomic objectives
More informationIntroduction. Learning Objectives. Chapter 13. Fiscal Policy
Chapter 13 Fiscal Policy Introduction Government expenditures on health care services have grown significantly since federal and state government began covering payments for various types of health-related
More informationThe aggregate supply curve shows the relationship between the aggregate price level and the quantity of aggregate output in the economy.
Chapter 32 The aggregate supply curve shows the relationship between the aggregate price level and the quantity of aggregate output in the economy. GDP Deflator can be used as a measure of the price level
More informationQuestion 5 : Franco Modigliani's answer to Simon Kuznets's puzzle regarding long-term constancy of the average propensity to consume is that : the ave
DIVISION OF MANAGEMENT UNIVERSITY OF TORONTO AT SCARBOROUGH ECMCO6H3 L01 Topics in Macroeconomic Theory Winter 2002 April 30, 2002 FINAL EXAMINATION PART A: Answer the followinq 20 multiple choice questions.
More informationObjectives for Chapter 24: Monetarism (Continued) Chapter 24: The Basic Theory of Monetarism (Continued) (latest revision October 2004)
1 Objectives for Chapter 24: Monetarism (Continued) At the end of Chapter 24, you will be able to answer the following: 1. What is the short-run? 2. Use the theory of job searching in a period of unanticipated
More informationMacroeconomics: Principles, Applications, and Tools
Macroeconomics: Principles, Applications, and Tools NINTH EDITION Chapter 16 The Dynamics of Inflation and Unemployment Learning Objectives 16.1 Describe how an economy at full unemployment with inflation
More informationArchimedean Upper Conservatory Economics, November 2016 Quiz, Unit VI, Stabilization Policies
Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The federal budget tends to move toward _ as the economy. A. deficit; contracts B. deficit; expands C.
More informationEXAM PREP WORKSHOP # 5 > COMBINED MONETARY AND FISCAL POLICY
LIGHTHOUSE CPA SOCIAL SCIENCES DEPARTMENT AP ECONOMICS EXAM PREP WORKSHOP # 5 > COMBINED MONETARY AND FISCAL POLICY NAME : DATE : Review Of Tools Of Monetary And Fiscal Policy : 1. Both monetary and fiscal
More informationCHAPTER 23 OUTPUT AND PRICES IN THE SHORT RUN
CHAPTER 23 OUTPUT AND PRICES IN THE SHORT RUN Expand model to make price level endogenous variable. LEARNING OBJECTIVES - Why exogenous change in price level shifts AE curve and changes equilibrium level
More informationChapter 13 Fiscal Policy
Chapter 13 Fiscal Policy Learning Objectives After you have studied this chapter, you should be able to 1. define fiscal policy, direct expenditure offsets, automatic or built-in stabilizers, crowding
More informationECON Drexel University Winter 2009 Assignment 4. Due date: Mar. 11, 2008
ECON 202-005 Drexel University Winter 2009 Assignment 4 Due date: Mar. 11, 2008 Instructor: Yuan Yuan Name This homework has up to 5 points bonus. Question 1 (40 points, 2 points each): MULTIPLE CHOICE.
More informationLecture 7. Fiscal Policy
Lecture 7 Fiscal Policy The role of government spending and taxes Fiscal policy: government spending and tax policy AD = C + II + G What if G changes? What is the effect on Y? How large is (government)
More informationFiscal and Monetary Policy
Fiscal and Monetary Policy Chapter 13 Part 4 of the Final Exam Review should be put in the basket on the projector cart at the beginning of class. The answer key for Part 3 is posted around the room. When
More informationProductivity Simulation 100. Productivity Simulation Presentation Reflection 30. Upcoming Activities/Announcements
Name: Period: Week: 34 36 Dates: 4/13 4/27 Unit: Measuring Economic Performance Chapters: 12 & 15 Monday Tuesday Wednesday Thursday Friday 13 O *Vocabulary *Chapter 12.1 *GDP 14 E 15 O *Chapter 12.2 *Aggregate
More informationModule 31. Monetary Policy and the Interest Rate. What you will learn in this Module:
Module 31 Monetary Policy and the Interest Rate What you will learn in this Module: How the Federal Reserve implements monetary policy, moving the interest to affect aggregate output Why monetary policy
More information15 th. edition Gwartney Stroup Sobel Macpherson. First page. edition Gwartney Stroup Sobel Macpherson
Alternative Views of Fiscal Policy An Overview GWARTNEY STROUP SOBEL MACPHERSON Fiscal Policy, Incentives, and Secondary Effects Full Length Text Part: 3 Macro Only Text Part: 3 Chapter: 12 Chapter: 12
More informationOF UEETING DEFICIT TARGETS. Updated September 16, by Brian W. Cashell. Economics Division. Congressional Research Service
GRAW4-BUDHAY-XOLLIYGS: POTEMTIAL ECOVOMIC EFFECTS OF UEETING DEFICIT TARGETS Updated September 16, 1987 by Brian W. Cashell Economics Division Congressional Research Service SUMMARY ISSUE DEFINITION BACKGROUND
More informationThe Model at Work. (Reference Slides I may or may not talk about all of this depending on time and how the conversation in class evolves)
TOPIC 7 The Model at Work (Reference Slides I may or may not talk about all of this depending on time and how the conversation in class evolves) Note: In terms of the details of the models for changing
More informationEcon 102 Exam 2 Name ID Section Number
Econ 102 Exam 2 Name ID Section Number 1. Suppose investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. The investment multiplier is: A) 10. B)
More informationExpansionary Fiscal Policy 2. If the economy is experiencing a recession what type of fiscal policy would be in order?
Stabilization Policies Reading Guide Chapters 12, 16, and 18 Chapter 12: Fiscal Policy 1. Assess the effect of fiscal policy on real output, price level, and the level of employment in the long run and
More informationFiscal Policy. Changes in federal taxes and purchases
Fiscal Policy Changes in federal taxes and purchases Where does the government spend its money? Federal Government Spending, 2010 Fiscal Policy An Overview of Government Spending and Taxes The Federal
More informationPart VIII: Short-Run Fluctuations and. 26. Short-Run Fluctuations 27. Countercyclical Macroeconomic Policy
Monetary Fiscal Part VIII: Short-Run and 26. Short-Run 27. 1 / 52 Monetary Chapter 27 Fiscal 2017.8.31. 2 / 52 Monetary Fiscal 1 2 Monetary 3 Fiscal 4 3 / 52 Monetary Fiscal Project funded by the American
More informationChapter 12 Aggregate Demand II: Applying the IS -LM Model
Chapter 12 Aggregate Demand II: Applying the IS -LM Model Modified by un Wang Eco 3203 Intermediate Macroeconomics Florida International University Summer 2017 2016 Worth Publishers, all rights reserved
More informationUNIT 5: STABILIZATION POLICIES WHAT CAN THE GOVERNMENT AND THE FEDERAL RESERVE DO TO FIX RECESSIONARY AND INFLATIONARY GAPS?
UNIT 5: STABILIZATION POLICIES WHAT CAN THE GOVERNMENT AND THE FEDERAL RESERVE DO TO FIX RECESSIONARY AND INFLATIONARY GAPS? FISCAL POLICY CLASSICAL ECONOMICS Adam Smith Invisible Hand It is not from the
More information1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the
1 Figure 1 (A) shows what the IS LM model looks like for the case in which the Fed holds the money supply constant. Figure 1 (B) shows what the model looks like if the Fed adjusts the money supply to hold
More informationFiscal Policy. Fiscal Policy
Fiscal Policy Fiscal policy was introduced earlier with the calculation of multipliers. AE multipliers imply fiscal policy is effective o because price is held constant along AE o SRAS s slope = 0 Aggregate
More informationEcon 330 Final Exam Name ID Section Number
Econ 330 Final Exam Name ID Section Number MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A group of economists believe that the natural rate
More informationHow does the government stabilize the economy?
FISCAL POLICY How does the government stabilize the economy? The government has two different tool boxes it can use: 1. Fiscal Policy- Actions by Congress and the president to adjust to the G in aggregate
More information1. You are right. When a fall in the value of the dollar against other currencies makes U.S. final
AP Krugman Section 4 Problem Solutions 1. You are right. When a fall in the value of the dollar against other currencies makes U.S. final goods and services cheaper to foreigners, this represents a shift
More informationIB Economics The Level of Overall Economic Activity 2.4: The Business Cycle Activity
IB Economics: www.ibdeconomics.com 2.4 THE BUSINESS CYCLE: STUDENT LEARNING ACTIVITY Answer the questions that follow. 1. DEFINITIONS Define the following terms: Business cycle Contraction Economic growth
More informationUNIT 5: STABILIZATION POLICIES WHAT CAN THE GOVERNMENT AND THE FEDERAL RESERVE DO TO FIX RECESSIONARY AND INFLATIONARY GAPS?
UNIT 5: STABILIZATION POLICIES WHAT CAN THE GOVERNMENT AND THE FEDERAL RESERVE DO TO FIX RECESSIONARY AND INFLATIONARY GAPS? FISCAL POLICY CLASSICAL ECONOMICS Adam Smith Invisible Hand It is not from the
More informationPrinciples of Macroeconomics November 11th, Answer Key Midterm 2
EC132.01(02) Serge Kasyanenko rinciples of Macroeconomics November 11th, 2005 I. Multiple Choice Section (30 points). Select one correct answer. Answer all questions. 1. A stable inflation can be achieved
More information9. ISLM model. Introduction to Economic Fluctuations CHAPTER 9. slide 0
9. ISLM model slide 0 In this lecture, you will learn an introduction to business cycle and aggregate demand the IS curve, and its relation to the Keynesian cross the loanable funds model the LM curve,
More information