BBG 101 Lecture Notes - Lecture 13: Fiscal Policy, Aggregate Demand

• School: Tunxis Community College
• Department: Business – General
• Course: BBG 101
• Professor: Smith

Document Summary

Suppose economy is in recession or growing too slowly. The government can respond by increasing g (governmental spending) or lowering tax rates. Suppose government decides to fund the building of a second sydney airport by the private sector. This directly affects the production of g and s, with the effects spread out over time. G ad (aggregate demand) y l (and possibly inflation ) economic growth . Suppose government lowers personal income tax rates (t). This directly increases the disposable income of households but only affects ad if this leads to more consumption expenditure on g and s (as against just saving more or paying off existing debts). Personal tax rate y disposable c ad y (total output) l (and possibly inflation ) growth . Similarly, decreases in company tax rates will encourage higher i and ad. Suppose the economy is booming or growing too fast. The government can respond by decreasing g or increasing tax rates.