 
|
Econ 4.3
Wednesday, March 3, 1999
Announcements: Homework #3 was
returned in class today.
Lecture notes:
Expenditure Multiplier
- C = 500 + .8 x Y
- G = 50 , T = 0 , I = 40
- See figure 10.3 on page 207
- Y = C + I + G
- Y = 500 + .8Y + 50 + 40
- Y = 500 + .8Y + 90
- Y = 590 + .8Y = 590 / .2 =2950
Macroequilibrium Disturbance
- Suppose G increases by 10
- Suppose T does not change
- WHAT WILL BE THE NEW LEVEL OF GDP?
- Neutral Fiscal Policy: GDP stays the
same
- Expansionary Fiscal Policy: cut taxes
and/or raise spending
- Contractionary Fiscal Policy: raise
taxes and/or cut spending
Government Spending Multiplier
- The ratio of the change in the equilbrium level of output
to a change in government spending
- Government spending multiplier = 1 / MPS
Tax Multiplier
- The ratio of change in the equilibrium level of output to
a change in taxes
- Tax Multiplier = - (MPC / MPS)
Balanced Budget Multiplier
- The ratio of change in the equilibrium level of output to
a change in government spending where the change in
government spending is balanced by a change in taxes so
as not to create any deficit. The balanced-budget
multiplier is equal to one: the change in Y resulting
from the change in G and the equal change in T is exactly
the same size as the initial change in G or T itself.
- Balanced Budget Multiplier = 1
|
