ECON 2006 Lecture Notes - Lecture 13: Aggregate Demand, Government Spending, Government Debt
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If it is, a fiscal expansion will lead to higher incomes, which lead to increased savings. Recovery act of 2009 was a case in point: despite high levels of government borrowing, Us interest rates stayed near historic lows: clai(cid:373) (cid:1007): (cid:862)go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)t (cid:271)udget defi(cid:272)its (cid:396)edu(cid:272)e p(cid:396)i(cid:448)ate spe(cid:374)di(cid:374)g. (cid:863, this is k(cid:374)o(cid:449)(cid:374) as (cid:862)ri(cid:272)a(cid:396)dia(cid:374) e(cid:395)ui(cid:448)ale(cid:374)(cid:272)e(cid:863). It assu(cid:373)es that (cid:272)o(cid:374)su(cid:373)e(cid:396)s, seei(cid:374)g the highe(cid:396) debt levels, will cut their spending today to say for inevitable increases in future tax rates necessary to pay down the debt. In the case of fiscal policy, there is an important reason for caution: there are significant lags in its use. It takes time to: realize the recessionary or inflationary gap by collecting and analyzing economic data, develop a plan. It"s a(cid:272)tuall(cid:455) (cid:373)o(cid:396)e (cid:272)o(cid:373)pli(cid:272)ated, (cid:271)e(cid:272)ause (cid:894)u(cid:374)like (cid:373)ost (cid:396)eal ta(cid:454) poli(cid:272)(cid:455)(cid:895) (cid:449)e use si(cid:373)ple lu(cid:373)p-sum ta(cid:454)es: ta(cid:454)es that do(cid:374)"t depe(cid:374)d o(cid:374) the ta(cid:454)pa(cid:455)e(cid:396)"s i(cid:374)(cid:272)o(cid:373)e.