ECON102 Chapter Notes - Chapter Lecture 13-15: Autonomous Consumption, Aggregate Supply, Potential Output
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ECON102 Full Course Notes
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Document Summary
Chapter 10 continued (fiscal policy: a question to solve, c=100+0. 8yd, t (taxes) = 50 (lump sum: fixed amount of taxes, g = 20. I = 30: x-m = 100, ynr (potential output) = 1500. Knowing that ae is equal to actual gdp (y), we can calculate ae (step 2 below): ae = c+i+g+x-m. Ae = 210+0. 8y: solve for y" : 1y-0. 8y = 210. So, this means that the change in y (actual output) is five times the change in spending. The recessionary gap is 450, so we need the y to increase by 450 given that the spending multiplier is equal to 5. C(consumption), decrease in y (output: increase in corporate taxes, decrease in profits of investments, decrease. Investment, decrease y: the relation is direct, but negative relation between taxes and output. This makes the tax multiplier to have a negative sign: to increase output, government has to reduce taxes.