ECO 1000 Lecture Notes - Lecture 2: Peace Dividend, Adjusted Gross Income, Flat Tax
Document Summary
Adam smith- the invisible hand of economics; sometimes viewed as (within reason) greed is good : keynesian economics. 2)wages and prices are flexible; they go up and down. 3)people motivated by self interest, greed is good. 4)people not fooled by 7054 illusion: say"s law. Leads to increase in demand for needed goods and ultimately for a few extras as well. Optimistic outlook by business: leads to increase in production. Fiscal policy: govt. involvement to stabilize economy, non-discretionary/ mandatory. Govt. involvement does not equal govt. control. Drawbacks discretionary fiscal policy: recognition lag. Time to measure economic performance: administrative lag. Time for congress/pres. to agree on action: operational lag. Not willing to deal with inflationary pressures. Increased tax, decreased spending: political business cycle. Fiscal policy used for short term gain elections. 7054 spent on one govt. program can not be spent on another. Increased 7054 spent on programs today = decreased 7054 spent on programs tomorrow.