ECON 330 Lecture Notes - Lecture 14: Fiscal Policy, Fiscal Multiplier, Laffer Curve

• School: University of Arizona
• Department: Economics
• Course: ECON 330
• Professor: Neumann

Document Summary

Fiscal policy: the use of government spending and taxes to i(cid:374)flue(cid:374)(cid:272)e the (cid:374)atio(cid:374)"s spe(cid:374)di(cid:374)g, e(cid:373)ploy(cid:373)e(cid:374)t, a(cid:374)d price level. Discretionary fiscal policy: the deliberate use of changes in government spending or taxes to alter aggregate demand and stabilize the economy. Spending multiplier (sm): the change in aggregate demand (total spending) resulting from initial change in any component of aggregate expenditures, including consumption, investment, government spending, and net exports. Marginal propensity to consume (mpc): the change in consumption spending resulting from a given change in income. Marginal propensity to save (mps): the change in saving resulting from a given change in income. Tax multiplier (tm): the change in aggregate demand (total spending) resulting from an initial change in taxes. Balanced budget multiplier: an equal change in government spending and taxes, which changes aggregate demand by the amount of the change in government spending. Fiscal policy is the use of government spending and taxes to stabilize the economy.