* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download Review, Chapters 15-17
Survey
Document related concepts
Foreign-exchange reserves wikipedia , lookup
Global financial system wikipedia , lookup
Pensions crisis wikipedia , lookup
Modern Monetary Theory wikipedia , lookup
Monetary policy wikipedia , lookup
Exchange rate wikipedia , lookup
Balance of trade wikipedia , lookup
Full employment wikipedia , lookup
Business cycle wikipedia , lookup
Fear of floating wikipedia , lookup
Interest rate wikipedia , lookup
Early 1980s recession wikipedia , lookup
Balance of payments wikipedia , lookup
Transcript
Fiscal policy Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives Fiscal Policy: Congress & President (Treasury/OMB) Monetary Policy—ain’t fiscal policy—The Fed does M-policy Fiscal automatic stabilizers Government spending and taxes that automatically increase or decrease with the business cycle •progressive income tax/unemployment benefits/food stamps / other entitlements Cyclically adjusted budget deficit or surplus The deficit or . surplus in the federal government’s budget if the economy were at potential GDP. Tax wedge The difference between the pre-tax and post-tax return to an economic activity. Disincentive to work??? Supply-side tax cuts Government Purchase and Tax Multipliers The Multiplier Effect and Aggregate Demand Government Purchase Multiplier The Multiplier Effect of an Increase in Government Purchases This spending multiplier is analogous but not the same as the deposit multiplier The Government Tax Multiplier Cut in tax rates affects equilibrium real GDP in two ways: (1) disposable income rises consumption spending rises (2) the rate at which purchasing power leaks from the spending stream declines the spending multiplier increases The less the marginal propensity to leak, the greater the spending multiplier. Recall: Spending Multiplier = 1/[Marginal Propensity to Leak] = 1/[Propensity Not to Respend Additional Income Domestically] =1/[Propensity to pay taxes, save and buy things from abroad] The Government Purchases and Tax Multipliers Taking into Account the Effects of Aggregate Supply: Slowing the Multiplier Because the Price Level rises, Real GDP does not increase as much as it otherwise would The multiplier effect is reduced Crowding out A decline in private expenditures as a result of an increase in government purchases…slowing the multiplier Money market An Expansionary Fiscal Policy Increases Interest Rates The Limits of Using Fiscal Policy to Stabilize the Economy Crowding Out in the Short Run The Phillips Curve The 1960s: A Policy Menu? Phillips curve A curve showing the shortrun relationship between the unemployment rate and the inflation rate. Explaining the Phillips Curve with Aggregate Demand and Aggregate Supply Curves As long as SRAS is stable, get Phillips Curve relation Phillips curve A curve showing the shortrun relationship between the unemployment rate and the inflation rate. Explaining the Phillips Curve with Aggregate Demand and Aggregate Supply Curves As long as SRAS is stable, get Phillips Curve relation Phillips curve shifts… If people expect high inflation… The Short-Run and Long-Run Phillips Curves The Inflation Rate and the Natural Rate of Unemployment in the Long Run Nonaccelerating inflation rate of unemployment (NAIRU) The unemployment rate at which the inflation rate has no tendency to increase or decrease. Equilibrium unemploy “Natural” unemploymt The Balance of Payments of the United States, 2006 (billions of dollars) Don’t forget net compensation of nationals working abroad (= Labor Services) The Balance of Payments balances: Current Account + Financial Account + Capital Account CURRENT ACCOUNT Exports of goods $1,023 Imports of goods −1,861 −838 Balance of trade Exports of services 423 Imports of services −343 Balance of services Income received on investments Income payments on investments 80 650 −614 Net income on investments −36 Net transfers −90 −812 Balance on current account FINANCIAL ACCOUNT Increase in foreign holdings of assets in the United States 1,860 Increase in U.S. holdings of assets in foreign countries −1,055 + Balance on Financial Account Statistical Discrepancy BALANCE ON CAPITAL ACCOUNT = Statistical discrepancy ZERO Balance of payments 805 -4 11 0 The Effect of a Government Budget Deficit on Current Account Balance The Twin Deficits, 1978–2006 Current Account Deficit = Net Capital Inflows = National Borrowing = (I – Sprivate) + (G – T) = - NFI = Private Borrowing + Public Borrowing The Foreign Exchange Market and Exchange Rates: The Operation of Supply and Demand for a Currency Equilibrium in the Market for Foreign Exchange Foreign demand for US dollar: •Buy US stuff •Currently produced goods and services •Buy US assets •Stocks •Bonds •Real estate •Hotels and factories (fdi) •Hold $ in US banks •Transactions demand •Speculative demand