Macro 16.pdf

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Macro 16

Economy & Finance

Chapter 17
The Government Budget
Taxes and Spending

Monetary
Central Bank
Tools
Reserve Ratio
Discount Rate
Open Market
Excess Reserve Rate
Fiscal
Government
Tools
Taxes
Spending
Aggregate Demand
Aggregate Demand
Aggregate Supply

Tax Revenues
Income Taxes
Social Security Taxes
Other

Progressive
The more you earn, the
higher the rate

De
fi
cits and Debt
Government
Spending and
Revenue

Balanced Budget
Spending exactly
equals revenues

Why would you want
government to go into
debt?
Don’t have to pay
Future larger economy

Debt
Investment
Only if the return is
higher than the
interest rate

P4
Price
Level
Real GDP orY
Fiscal Policy and Negative Supply Shock
18
Long Run
Aggregate
Supply Short Run
Aggregate
Supply
19
P1
Aggregate
Demand
17
P2
P3
In
fl
ation and
Recession
Stag
fl
ation

P2
Price
Level
Real GDP orY
Increase Aggregate Demand
Lower Taxes and/or Increase Spending
18
Long Run
Aggregate
Supply
Short Run
Aggregate
Supply
19
P1
Aggregate
Demand
17
Unemployment

P3
Price
Level
Real GDP orY
Decrease Aggregate Demand
Raise Taxes and/or Decrease Spending
18
Long Run
Aggregate
Supply
Short Run
Aggregate
Supply
19
P1 Aggregate
Demand
17
In
fl
ation

Where does
government get
money?
Crowding Out

More Borrowing
Crowding Out
Increase interest
rates

Lower Taxes
People may just save
more and not spend

More Spending
Now get free stuff.
No new spending

Get a free iPhone
But your taxes
will go up to
pay for it
No change in total
spending

If there are inactive capitals
Output will increase
If all capitals are active
Prices will increase

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Macro 16.pdf

2. Lecture 16 Macroeconomics

3. Opening Prayer

4. Quiz Master

5. Chapter 17 The Government Budget Taxes and Spending

6. Two Objectives Unemployment Inflation

7. Monetary Central Bank Tools Reserve Ratio Discount Rate Open Market Excess Reserve Rate Fiscal Government Tools Taxes Spending Aggregate Demand Aggregate Demand Aggregate Supply

10. Tax Revenues Income Taxes Social Security Taxes Other

11. Types Per Head Flat Progressive

12.

13. Corporate Tax Rate 21% Flat Rate

14. Progressive The more you earn, the higher the rate

15. Types Income Sales VAT Property Excise

16. De fi cits and Debt Government Spending and Revenue

17. De fi cit Spending greater than revenue

18. Balanced Budget Spending exactly equals revenues

19. Surplus Revenue greater than spending

20. Debt Accumulated deficits

21. Debt $24 trillion $72,700 per person

22.

23. Why would you want government to go into debt? Don’t have to pay Future larger economy

24. Debt Investment Only if the return is higher than the interest rate

25. Chapter 18 Fiscal Policy

26. P4 Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 P2 P3 In fl ation and Recession Stag fl ation

27. P2 Price Level Real GDP orY Increase Aggregate Demand Lower Taxes and/or Increase Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 Unemployment

28. P3 Price Level Real GDP orY Decrease Aggregate Demand Raise Taxes and/or Decrease Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 In fl ation

29. Where does government get money? Crowding Out

30. More Taxes Cancel No effect

31. More Borrowing Crowding Out Increase interest rates

32. Lower Taxes People may just save more and not spend

33. More Spending Now get free stuff. No new spending

34. Get a free iPhone But your taxes will go up to pay for it No change in total spending

35. Where does government get the money?

36. GDP = C + I + G + X - M

37. If there are inactive capitals Output will increase If all capitals are active Prices will increase