EC140 Lecture Notes - Lecture 11: Aggregate Demand, Government Spending, Longrun
meghan78 and 39778 others unlocked
21
EC140 Full Course Notes
Verified Note
21 documents
Document Summary
Ec 140- lecture 11: from the short-run to the long-run- fiscal policy and. Government spending and tax policy affect the ad curve. May work faster than economic adjustment process. Increases aggregate demand: may work faster than economic adjustment process. For inflationary gaps: decreases aggregate demand, limits the increase in the price level. Fiscal policy is using government spending and/or net taxes to influence the aggregate economy. Net tax rates, t, act to reduce the multiplier. Automatically limits the effects of aggregate demand shocks (positive or negative) Increasing marginal tax rates: employment insurance/ welfare systems. Changing fiscal policy is the work of government. May result in months of delay in enacting policy. Execution lags longer for spending than for tax changes. Permanent tax changes have a larger effect than temporary ones. One possibility- no, government spending crowds out private expenditure: reduces consumption, or investment. If investment falls- future growth rates may be affected.