BSB113 Lecture Notes - Lecture 11: Potential Output, Business Cycle, Aggregate Supply
Document Summary
Automatic stabilisers - occur automatically increasing or decreasing transfer payments and taxes throughout business cycle. Using fiscal policy to influence aggregate demand: question 2. 4. The multiplier effect and government purchases and tax multipliers: question 3. 7. . 5 billion: construct an example of a combination of increased government spending and tax cuts that will bring the economy to equilibrium at potential gdp. The limits to using fiscal policy to stabilise the economy: question 4. 5. Increased government spending would lead to higher interest rate, crowding out consumption, investment and net exports. Think about the permanent aspect of long run crowding out, investment spending would be most severely affected. Because investment consists of business fixed and residential investment of domestic market (buying house, inventory, capital goods). Because one it is involved with the long-run growth rate, the government has already increased its spending permanently . Then wherever the money is put in does not matter. Deficits, surpluses and federal government debt: question 5. 10.
