ECO105Y1 Study Guide - Creative Destruction, Anti-Globalization Movement, Opportunity Cost
Document Summary
Fiscal polices changes in government spending, taxes, and transfers act as aggregate demand shocks, have multiplied impact on real gdp, and can counter output gaps. Yes and no camps favor different combinations of fiscal policies. Fiscal policy changes in government purchases, taxes and transfers, to achieve macroeconomic outcomes of steady growth, full employment, and stable prices. Injection spending in circular flow that does not start with consumers: g (government spending), i (business investment spending), x (exports) Leakage spending that leaks out of circular flow through taxes, savings, and imports. Multiplier effect spending injection has multiplied impact on real gdp. Size of multiplier effects depends on leakers out of circular flow. Multiplier effect for tax and transfers changes not as big as for government spending. Any change in injections g, i, x affects aggregate demand and has multiplied impact on gdp. Increase government spending; cut taxes, increase transfers are positive aggregate demand shocks to counter recessionary gaps.
