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and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
12
Copyright McGraw-Hill/Irwin, 2005
C HAPT E R
FISCAL POLICY
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LEGISLATIVE MANDATES
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
Employment Act of 1946 Council of Economic Advisors (CEA) Joint Economic Committee (JEC)
Copyright McGraw-Hill/Irwin, 2005
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Two Options Discretionary Fiscal Policy Non-Discretionary Fiscal Policy Expansionary Fiscal Policy To Reduce Unemployment Increase Government Spending Tax Reductions Combinations of the Two
Copyright McGraw-Hill/Irwin, 2005
Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
Price level
P1
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AD2
$490 $510
AD1
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To Reduce Inflation Decrease Government Spending Tax Increases Combinations of the Two
Copyright McGraw-Hill/Irwin, 2005
Price level
Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
P2
P1
AD3
Previous Slide End Show 12 - 6 Next Slide
AD4
$510 $522
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
Borrowing vs. New Money Borrowing From The Public Money Creation Debt Retirement vs. Idle Surplus Debt Reduction Impounding
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Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
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BUILT-IN STABILITY Net tax revenues vary directly with GDP Transfer payments behave the opposite way as tax collections Automatic or Built-In Stabilizers Economic Importance
Copyright McGraw-Hill/Irwin, 2005
BUILT-IN STABILITY
Legislative Mandate Fiscal Policy and the AD-AS Model
Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
Surplus
G
Deficit
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GDP1
GDP2
GDP3
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
BUILT-IN STABILITY Tax Progressivity Progressive Tax System Proportional Tax System Regressive Tax System
The more progressive the tax system, the greater the economys built-in stability.
Copyright McGraw-Hill/Irwin, 2005
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FULL-EMPLOYMENT DEFICITS
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
T1
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(Year 2) (Year 1)
GDP2 GDP1
FULL-EMPLOYMENT DEFICITS
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
T1 T2
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Year 4 Year 3
Copyright McGraw-Hill/Irwin, 2005
GDP4 GDP3
Actual Deficit or Surplus -3.9% -4.5% -4.7% -3.9% -2.9% -2.2% -1.4% -0.3% +0.8% +1.4% +2.4% +1.3% -1.5%
Full-Employment Deficit or Surplus -2.1% -2.4% -2.9% -2.8% -2.1% -2.0% -1.3% -0.9% -0.4% +0.3% +1.1% +0.8% -1.5%
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GLOBAL PERSPECTIVE
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
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Italy Sweden Canada United Kingdom France United States Ireland Norway Japan
Source: Organization for Economic Development and Cooperation
Copyright McGraw-Hill/Irwin, 2005
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
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Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy
Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
Price level
P1
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AD2
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy
Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
Price level
P1
Next Slide
Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
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fiscal policy Employment Act of 1946 Council of Economic Advisers (CEA) expansionary fiscal policy budget deficit contractionary fiscal policy budget surplus built-in stabilizer
Copyright McGraw-Hill/Irwin, Inc., 2005
progressive tax system proportional tax system regressive tax system full-employment budget cyclical deficit political business cycle crowding-out effect net export effect
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Legislative Mandate Fiscal Policy and the AD-AS Model Expansionary and Contractionary Fiscal Policy Financing of Deficits and Disposing of Surpluses Built-In Stability Evaluating Fiscal Policy Problems, Criticisms, and Complications Fiscal Policy in the Open Economy Forecasting the Future Key Terms
Chapter 13
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