01:220:103 Lecture Notes - Lecture 13: Business Cycle, Consumption Function, Fiscal Multiplier

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limeherring262

4 Apr 2017

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In macroeconomics, the policy instruments are fiscal policy and monetary policy. Fiscal policy: the government"s spending and taxing policies. Monetary policy: the behavior of the federal reserve concerning the nation"s money supply. * taxes and government spending often go up or down in response to change in the economy. Changes in taxes or spending that are the result of deliberate changes in government policy. Taxes paid by firms and households to the government - transfer payments made to households by the government. The difference between what a government spends and what it collects in taxes in a given period: g - t. To modify our aggregate consumption function to incorporate disposable income: c = a + b(yd, c = a + b (y-t) The consumption function now has consumption depending on disposable income instead of before-tax income. The government can affect investment behavior through its tax treatment of depriciation and other tax policies.

Related Questions

Given the following information for the Macro Economy answer the following questions.

In this economy we have an MPC equal to 0.80, Autonomous Consumption of $600 billion, Planned Investment (I) of $1,000 billion, Government Spending (G) of $1,200 billion and Net Taxes (T) of $1,000 billion.

a) Fill in the missing data for: T, Yd, C, S, and AE (in that order in a table) for every level of Y given below (all the numbers are in billions).

Income (Y) Net Taxes (T) Disposable Income (Yd) Consumption (C) Savings (S) Aggregate Expenditures (AE)
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000

b) Determine the Equilibrium level of Aggregate Income (Ye). Please state the reason for your answer.

c) Calculate the Spending Multiplier (show how you got your answer).

tealalligator726

Studies indicate that the changes in fiscal and monetary policy affect the 3 economic agents in the economy (households, firms and government). How do the changes in monetary and fiscal policy instruments affect you personally or work-wise? Policymakers who want to stabilize the economy must decide how much to change the money supply, government spending, or taxes. Why is it difficult for policymakers to choose the appropriate strength of their actions? Which method do you think is better in the long run? Why? Some economists and policymakers argue in favor of replacing the current income tax in the USA with a consumption tax. What are your opinions on the issue? How do think such change impacts your income and expenditure pattern? Which tax method do you prefer- Income tax or consumption tax? Why? What are the pros and cons of the two tax methods?

raspberrybuffalo945

Studies indicate that the changes in fiscal and monetary policy affect the 3 economic agents in the economy (households, firms, and government).

How do the changes in monetary and fiscal policy instruments affect you personally or work-wise?

Policymakers who want to stabilize the economy must decide how much to change the money supply, government spending, or taxes. Why is it difficult for policymakers to choose the appropriate strength of their actions?

Which method do you think is better in the long-run? Why?

Some economists and policymakers argue in favor of replacing the current income tax in the USA with a consumption tax. What are your opinions on the issue?

How do think such change impacts your income and expenditure pattern?

Which tax method do you prefer - income tax or consumption tax? Why?

What are the pros and cons of the two tax methods?

salmonturtle238

01:220:103 Lecture Notes - Lecture 13: Business Cycle, Consumption Function, Fiscal Multiplier

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