1 / 19

Principles of Macroeconomics

Principles of Macroeconomics. Chapter 12:Fiscal Policy. Fiscal Policy – Keynesian region. Fiscal policy – intermediate region. Fiscal policy – classical region. Multipliers. Government spending multiplier = 1 / (MPS + MPI)

vaughn
Télécharger la présentation

Principles of Macroeconomics

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Principles of Macroeconomics Chapter 12:Fiscal Policy

  2. Fiscal Policy – Keynesian region

  3. Fiscal policy – intermediate region

  4. Fiscal policy – classical region

  5. Multipliers • Government spending multiplier = 1 / (MPS + MPI) • Lump-sum tax multiplier = -(MPC-MPI) / (MPS + MPI) • Balanced-budget multiplier = effect of equal changes in G and T = 1

  6. Government budget constraint • Government spending = taxes + change in government debt + change in government-issued money

  7. Tax finance of government spending • Balanced-budget multiplier = 1 • Offsetting effects: • Incentive effects may reduce labor supply and cause a reduction in AS • Laffer curve

  8. Deficit financing of government spending • Ricardian equivalence: • Individuals may save more in response to higher expected future taxes • Crowding out: • Increased borrowing leads to higher interest rates; resulting in a reduction in I and C (discussed more extensively shortly)

  9. Monetary expansion used to finance government spending • 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.

  10. 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.

  11. 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

  12. 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

  13. Deficits, interest rates, and investment • Loanable funds model

  14. Demand for loans

  15. Supply of loans

  16. Equilibrium

  17. Increase in deficit

  18. 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

  19. 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

More Related