Download Public Sector and Full Employment GDP

Public Sector and Full
Employment GDP
Chapter 10 continued
Government Spending
An increase in gov’t spending boosts
aggregate expenditure
 See the table on page 190 and graph on
page 191

Gov’t spending is 20 billion at every level
 The new equilibrium is 550

 GDP

= C (510) + Ig (20) + Xn (0) + G (20)
Remember that GDP was 470 when it was only C + Ig
Tax Increase
Taxes reduce DI so C and S decreases at
each level
 Increase in taxes will lower the aggregate
expenditure
 See table 10.4 on page 191 and graph on
page 192

Tax is 20 billion at each level
 The new GDP equilibrium is 490


The sum of leakages (savings, imports
and taxes) = sum of injections (investment,
exports and G purchases) at the
equilibrium GDP
G vs tax cuts
An = increase in G spending and taxes
increases the equilibrium GDP
 An increase in G is direct and adds $20
billion (example) to aggregate
expenditures
 A decrease in T has indirect effect on
aggregate expenditures because T cuts
can be C (mpc) or S (mps). S is a
leakage.

BONUS Due TODAY OR
BEFORE THE TEST
Page 201
 Number 4
 Number 5
 Number 7 (use figures 10-5 and
10-6 for help)

Be sure to answer all parts of the questions.