Public Administration - Municipal BUS400 Lecture Notes - Lecture 7: Tax Rate, Fiscal Policy, Monetary Policy

35 views3 pages

greenmuskrat329

28 Dec 2017

School

Seneca College

Department

Public Administration - Municipal

Course

Public Administration - Municipal BUS400

Professor

Alan Bastian

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

De(cid:373)a(cid:374)d-side poli(cid:272)ies: to redu(cid:272)e u(cid:374)e(cid:373)plo(cid:455)(cid:373)e(cid:374)t, to redu(cid:272)e i(cid:374)flatio(cid:374) Fis(cid:272)al a(cid:374)d (cid:373)o(cid:374)etar(cid:455) poli(cid:272)ies that shift ad to the right. Fis(cid:272)al a(cid:374)d (cid:373)o(cid:374)etar(cid:455) poli(cid:272)(cid:455) that shift ad to the left. Ma(cid:272)roe(cid:272)o(cid:374)o(cid:373)i(cid:272) poli(cid:272)ies: de(cid:373)a(cid:374)d-side poli(cid:272)ies, fis(cid:272)al poli(cid:272)(cid:455, mo(cid:374)etar(cid:455) poli(cid:272)(cid:455, for i(cid:374)flatio(cid:374), for u(cid:374)e(cid:373)plo(cid:455)(cid:373)e(cid:374)t, shift ad to the left, shift ad to the right. Cha(cid:374)ges i(cid:374) as: if as i(cid:374)(cid:272)reases, real gdp i(cid:374)(cid:272)reases a(cid:374)d the pri(cid:272)e le(cid:448)el de(cid:272)reases, if as de(cid:272)reases, real gdp de(cid:272)reases a(cid:374)d the pri(cid:272)e le(cid:448)el i(cid:374)(cid:272)reases . As: suppl(cid:455)-side poli(cid:272)ies: poli(cid:272)ies desig(cid:374)ed to i(cid:374)flue(cid:374)(cid:272)e real gdp (cid:271)(cid:455) shifti(cid:374)g, suppl(cid:455)-side e(cid:272)o(cid:374)o(cid:373)i(cid:272)s: poli(cid:272)ies that e(cid:373)phasize the i(cid:374)(cid:272)e(cid:374)ti(cid:448)es to (cid:449)ork, re(cid:272)o(cid:373)(cid:373)e(cid:374)d (cid:272)ha(cid:374)ges i(cid:374) ta(cid:454)es sa(cid:448)e, a(cid:374)d i(cid:374)(cid:448)est so as to i(cid:374)flue(cid:374)(cid:272)e as. Cha(cid:374)ges i(cid:374) as i(cid:374) i(cid:374)(cid:272)o(cid:373)e: the (cid:373)argi(cid:374)al ta(cid:454) rate (cid:894)mtr(cid:895): the (cid:272)ha(cid:374)ge i(cid:374) ta(cid:454)es resulti(cid:374)g fro(cid:373) a (cid:272)ha(cid:374)ge, mtr = t/ y, where, = (cid:272)ha(cid:374)ge, t = ta(cid:454)es, y = i(cid:374)(cid:272)o(cid:373)e. Cha(cid:374)ges i(cid:374) as: so(cid:373)e e(cid:272)o(cid:374)o(cid:373)ists argue that suppl(cid:455)-side e(cid:272)o(cid:374)o(cid:373)i(cid:272)s is i(cid:374)effe(cid:272)ti(cid:448)e.

Related Questions

MBA502, Economics for Business

Apply and Discover 7.2

You are responsible for economic policymaking in your country. Your desire is to eliminate inflation, keeping prices absolutely stable at P = 100, no matter what happens to output. Currently, the economy is in equilibrium at Q = 3200 (where Q = potential GDP) and P = 100. You can use monetary and fiscal policies to affect aggregate demand but you cannot affect aggregate supply in the short run. How would you respond to the following scenarios?

Explain and illustrate how each of these events would affect aggregate demand, aggregate supply, and prices, then explain how you would respond with economic policies.

1. A surprise increase in investment spending

In the short run, when investment spending increases, it results in an increase in Aggregate Demand (AD), which in turn pushes up both GPD and the price index.

To counterbalance this development, government might pursue contractionary fiscal policy by increasing taxes (to reduce consumption) or decreasing its own investment and spending so that the AD curve shifts back to its original position. Alternatively, the government can pursue contractionary monetary policy by reducing money supply and increasing interest rate to discourage economic activity.

2. Catastrophic floods that cause a sharp food price increase

In this case, sharp food shortages and consequent price increases cause a shock-type adjustment of the aggregate supply curve (it shift up and to the left). The result is a lower GDP and a higher price level.

The government cannot do anything to adjust AS in the short run. However, if the goal is to maintain the price level constant, the government can decide to do something to decrease the aggregate demand to force prices to come down, though it will be accompanies by another contraction in GDP and so it would not be a smart thing to do.

To cause AD to decrease, the government, similar to example above, can pursue fiscal policy (increase taxes, decrease spending) or monetary policy (reduce supply of money to the economy and thus increase interest rates).

3. A productivity decline that reduces potential output

In this case, AS shifts to the left, as was the case in example 2. As a result, price levels go up, as the same amount of money is chasing the reduced amount of goods and services, and GDP declines.

Government remedies here would be centered about causing AD to decrease through contractionary fiscal (higher taxes, lower spending) or monetary (reduce money supply and increase interest rates) policy. Again, this decision reduces inflation but at expense of GDP, as real output shrinks further.

4. A deep depression in East Asia that causes a sharp decrease in net exports to the United States

A decrease in exports of goods to from the United States to Asia will mean that the aggregate demand (which includes net exports

Show transcribed image text

1. If government tax policy requires Jane to pay $28,000 in taxes on an annual income of $200,000 and Mary to pay $10,000 in tax on the annual income of $100,000, then the tax policy is:

		regressive.
		progressive.
		proportional.
		optional.

2. When increasing oil prices cause aggregate supply to shift to the left, then:

		unemployment and inflation decrease.
		unemployment decreases and inflation increases.
		unemployment and inflation increase.
		unemployment increases and inflation decreases.

3. What do goods like gasoline, tobacco, and alcohol typically share in common?

		A progressive tax is imposed on each of them.
		A regressive tax is imposed on each of them.
		They are all subject to government excise taxes.
		They are all subject to government fiscal taxes.

4. When inflation begins to climb to unacceptable levels in the economy, the government should:

		use contractionary fiscal policy to shift aggregate demand to the right.
		use contractionary fiscal policy to shift aggregate demand to the left.
		use expansionary fiscal policy to shift aggregate demand to the right.
		use expansionary fiscal policy to shift aggregate demand to the left.

rubykangaroo105

Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.

In the summer of 1953, the Korean War ended and government expenditures decreased. In terms of the AS-AD model, this change should have shifted the AD curve to the left. A cut in government spending reduces economic activity and shifts the AD curve to the left.

limehyena147

Public Administration - Municipal BUS400 Lecture Notes - Lecture 7: Tax Rate, Fiscal Policy, Monetary Policy

Document Summary

Get access

Related Documents

Public Administration - Municipal BUS400 Lecture Notes - Lecture 14: Overnight Rate, Keynesian Economics, Retained Earnings

Public Administration - Municipal BUS400 Lecture Notes - Lecture 7: Aggregate Demand, Xm Satellite Radio, Fallacy

Public Administration - Municipal BUS400 Lecture Notes - Lecture 8: Smog, Capital Accumulation, Sustainable Development

Related Questions