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Lecture 16
Macroeconomics
Opening
Prayer
Quiz Master
Chapter 17
The Government Budget
Taxes and Spending
Two Objectives
Unemployment
Inflation
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
Types
Per Head
Flat
Progressive
Corporate Tax Rate
21% Flat Rate
Progressive
The more you earn, the
higher the rate
Types
Income
Sales
VAT
Property
Excise
De
fi
cits and Debt
Government
Spending and
Revenue
De
fi
cit
Spending greater
than revenue
Balanced Budget
Spending exactly
equals revenues
Surplus
Revenue greater
than spending
Debt
Accumulated deficits
Debt
$24 trillion
$72,700 per person
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
Chapter 18
Fiscal Policy
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 Taxes
Cancel
No effect
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
Where does
government get
the money?
GDP
= C + I + G + X - M
If there are inactive capitals
Output will increase
If all capitals are active
Prices will increase

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