Fiscal Policy Chapter 12. Chapter 12 Figure 12.1 Expansionary Fiscal Policy: Battling...
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Transcript of Fiscal Policy Chapter 12. Chapter 12 Figure 12.1 Expansionary Fiscal Policy: Battling...
Fiscal Policy
Chapter 12
Chapter 12 Figure 12.1
Expansionary Fiscal Policy:Battling Recession/Depression
Chapter 12 Figure 12.2
Contractionary Fiscal Policy:Battling Demand-pull Inflation
Chapter 12 Figure 12.3
Automatic Stabilizers
Chapter 12 Figure 12.4(a)A Full-employment Balanced
Budgetin a Recession
Chapter 12 Figure 12.4(b)Expansionary Fiscal Policy: a Full-
employment Deficit in Response to a Recession
Chapter 12 Table 12.1
Chapter 12 Figure 12.5(a)The AE Multiplier in the Absence
of Crowding Out or the Net Export Effect
Crowding Out
Running a Government Deficit requires the Government to Borrow more Money by issuing More Bonds
To get Investors to Buy More Bonds, the Government must Offer a Higher Interest Rate
The Higher Interest Rate Lowers Private Investment Spending (Crowding Out of Private Investment) Lowering the AE, shifting the AD curve to the left Exactly the opposite of what was intended
The Net Export Effect
The Higher Interest Rate in the U.S. makes the dollar more valuable as an investment asset
The foreign exchange value of the dollar rises Making U.S. exports more expensive (X falls) The foreign exchange value of foreign
currencies falls Making imports into the U.S. cheaper (M rises) Xn = X – M falls!
Chapter 12 Figure 12.5(b)
Chapter 12 Table 12.2