ECN 204 Lecture Notes - Lecture 3: Aggregate Supply, Fiscal Policy, Output Gap

• School: Ryerson University
• Department: Economics
• Course: ECN 204
• Professor: Sara Thompson

Document Summary

Injection : increase in government spending increases gdp. Assume government expenditures =1000: taxes reduces the gdp. Leakage ; government collects taxes ; increase in taxes, When taxes increase by 1000$ disposable income drops by. C drops by because mpc is . 8. Ae drops by : gdp drops by x (1/. 2)-> -4000. Changes in g have a bigger impact on gdp than. When the govt spends money and colects the. Same amount of taxes (equal changes in g &t) , Every time we change the g and t by the same amount, the. Balanced budget multiplier (how many times the gdp increases) is always equal to 1. change in gdp is same amount. Recessionary gap: the amount by which equilibrium gdp falls short of potential full employment gdp. Fiscal policy (govt is responsible for) : decrease taxes and increase government expenditure. Monetary policy (central bank is responsible for) : decrease roi.