Macro 17

2. Lecture 17
Macroeconomics

3. Opening
Prayer

4. Quiz Master

5. Chapter 18
Fiscal Policy

6. 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
Inflation and
Recession
Stagflation

7. 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

8. 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
Inflation

9. Where does
government get
money?
Crowding Out

10. More Taxes
Cancel
No effect

11. More Borrowing
Crowding Out
Increase interest
rates

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

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

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

15. Where does
government get
the money?

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

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

20. Tax Rate %
$
Tax
Revenue
Laffer Curve
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Dropped Top Marginal Income
Tax Rate
from 70% to 28%

22. Supply Side Tax
Changes
Lower marginal tax rates
incentivize people to
work more and firms to
create more.

23. P3
Price
Level
Real GDP orY
Increase Long Run Aggregate Supply
Lower Marginal Tax Rates
18
Long Run
Aggregate
Supply
Short Run
Aggregate
Supply
19
P1
Aggregate
Demand
17
Lower Prices
Increase
Output

24. Time Lags
Do you really know?
Congress approve
Effect lag
Take 1- 3 years
Counterproductive

25. Multiplier
May not be as large as
Keynes calculated

26. Automatic Stabilizers
Job Unemployed Job
Taxes
Insurance
Taxes

27. What two questions do economists always
ask?
What answer do economists always give?
Quiz
Compared to what?
Then what happens?
It depends.

29. Spending more than Tax
Revenue
Budget Deficit
Borrow to Spend
IOUs
U.S. Government
Bonds

30. If the the public loans money to the
government, no change in money supply.
If the Central Bank loans money to the
government, it may increase the money
supply
Inflation

31. U.S. Government
Fiscal Policy
Central Bank
Monetary Policy
I.O.U.

32. U.S. Government Bonds
IOUs
Federal Reserve Bank
Printing Currency

33. Ability to Pay
Who Should Pay the Taxes?
Benefits
Depends on your definition of
fairness

34. You
Which Country?
Everyone else
A. $30,000 $30,000
B.
C.
$60,000 $100,000
$20,000 $10,000

35. Chapter 19
International
Trade

36. https://oec.world/

39. $300 $300

40. The Balance of
Trade and Trade
Deficits

41. All Exports = All Imports

42. Countries don’t buy
and sell
Individuals do

43. Why trade?
Value creation
Make it or trade for it

44. Trade can only take
us so far
We must have
production

45. Poverty is the rule
Prosperity is the
exception

46. Poverty has no
causes
Poverty is default

47. Specialization
Reduces time
Increases skill
Automation

48. Automation
A machine to do one
task

49. Trading 480 minutes
for 28,800 seconds
from many others
Produce one thing
Consume many

50. Improvement creates potential
Competition makes reality

51. Restricting trade
Reduces competition
Reduces productivity

52. Foreigners take
dollars because they
value dollars
Follow the Dollars

53. Why do people want dollars?
Buy American Products
Invest in America
Trade for other currencies
Hold and hope