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III. UNIT III

III. UNIT III. F. Fiscal Policy. 1. Calculation and use of the. multiplier. 2. Calculation and use of the. lump sum tax multiplier. 3. Discretionary fiscal policy. applications. 4. Problems, criticisms, complications. 5. Supply-side fiscal policy. INCOME. REAL. C. GDP. equals.

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III. UNIT III

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  1. III. UNIT III . . F. Fiscal Policy 1. Calculation and use of the multiplier 2. Calculation and use of the lump sum tax multiplier 3. Discretionary fiscal policy . . applications 4. Problems, criticisms, complications 5. Supply-side fiscal policy

  2. INCOME REAL C GDP equals 900 0 1650 1000 2400 2000 PI IS 600 3150 3000 3900 G IS 500 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 MULT. = 4 11000 9900 12000 10650 13000 14000 11400

  3. SUPPOSE THAT NET LUMP SUM TAX IS RAISED BY $666 2/3, (Meaning NET TAXES Raised by 666 2/3)

  4. SUPPOSE THAT THE LUMP SUM TAX IS RAISED BY PREDICTION!!!!!!! A.D. WILL FALL BY $666 2/3 $2000

  5. DETERMINANTS OF AUTONOMOUS CONSUMPTION AUTO. C 1. NOMINAL WEALTH AUTO. C 2. PRICE LEVEL AUTO. C 3. CONSUMER DEBT AUTO. C 4. EXPECTATIONS AUTO. C 5. LUMP SUM TAXES AUTO. C 6. MONEY SUPPLY

  6. CHANGE CHANGE IN MULT X IN AUTONOMOUS = AD PLANNED SPENDING

  7. ? CHANGE CHANGE IN MULT X IN AUTONOMOUS = AD PLANNED SPENDING

  8. CHANGE CHANGE IN MULT X IN AUTONOMOUS = AD PLANNED SPENDING ( ) = X ? ? 4

  9. CHANGE CHANGE IN MULT X IN AUTONOMOUS = AD PLANNED SPENDING ( ) = X ? ? 4 = ? +666 2/3 ( 3/4 X X ) 4 MPC TAX CHANGE

  10. CHANGE CHANGE IN MULT X IN AUTONOMOUS = AD PLANNED SPENDING ( ) = X ? ? 4 = ? +666 2/3 ( 3/4 X X - ) 4 NET TAX CHANGE MPC - !

  11. CHANGE CHANGE IN MULT X IN AUTONOMOUS = AD PLANNED SPENDING -2000 -500 ( ) = X ? ? 4 = ? +666 2/3 ( 3/4 X X - ) 4 NET TAX CHANGE MPC - !

  12. PRICE NOT TO LEVEL SCALE!!!!!!! $900 6000 600 500 P.L.2 A.S.2 G P.I. A.C. I.C. 8000

  13. PRICE NOT TO LEVEL SCALE!!!!!!! 6000 600 500 400 P.L.2 A.S.2 P.I. G. I.C. A.C. 7500

  14. PRICE NOT TO LEVEL SCALE!!!!!!! 4 5 0 500 600 600 500 400 0 P.L.2 A.S.2 P.I. G I.C. A.C. G. P.I. 6000

  15. INCOME C REAL GDP equals 900 0 1650 1000 2400 2000 PI IS 600 3150 3000 3900 G IS 500 4000 4650 5000 5400 6000 6150 7000 6900 8000 7650 9000 8400 10000 9150 11000 9900 12000 10650 13000 14000 11400

  16. INCOME C REAL GDP equals 400 900 0 1650 1150 1000 2400 1900 2000 PI IS 600 3150 2650 3000 3900 G IS 500 4000 3400 4650 5000 4150 4900 5400 6000 5650 6150 7000 6400 6900 8000 7650 7150 9000 8400 7900 10000 9150 8650 11000 9900 9400 12000 10150 10650 13000 10900 14000 11400

  17. CHANGE CHANGE IN MULT X IN AUTONOMOUS = AD PLANNED SPENDING -2000 -500 ( ) = X ? ? 4 = ? +666 2/3 ( 3/4 X X - ) 4 NET TAX CHANGE MPC - !

  18. CHANGE ) ( CHANGE IN NET TAX CHANGE MULT X IN AUTONOMOUS = MPC X - AD PLANNED SPENDING -2000 -500 ( ) = X ? ? 4 = ? +666 2/3 ( 3/4 X X - ) 4 NET TAX CHANGE MPC - !

  19. ) ( CHANGE CHANGE IN NET TAX CHANGE MULT X IN AUTONOMOUS = MPC X - AD PLANNED SPENDING ) ( CHANGE CHANGE IN 1 NET TAX CHANGE = X MPC - X AD MPS PLANNED SPENDING

  20. ) ( CHANGE CHANGE IN NET TAX CHANGE MULT X IN AUTONOMOUS = MPC X - AD PLANNED SPENDING ) ] ( CHANGE [ CHANGE IN 1 NET TAX CHANGE = X MPC - X AD MPS PLANNED SPENDING 1

  21. ) ( CHANGE CHANGE IN NET TAX CHANGE MULT X IN AUTONOMOUS = MPC X - AD PLANNED SPENDING CHANGE ) ] ( [ CHANGE IN 1 NET TAX CHANGE = X MPC - X AD MPS PLANNED SPENDING 1 NET TAX CHANGE CHANGE IN MPC = - X AD MPS

  22. CHANGE ) ( CHANGE IN NET TAX CHANGE MULT X IN AUTONOMOUS = MPC X - AD PLANNED SPENDING CHANGE ) ] ( [ CHANGE IN 1 NET TAX CHANGE = X MPC - X AD MPS PLANNED SPENDING 1 NET TAX CHANGE CHANGE IN MPC = - X AD MPS LUMP SUM TAX MULTIPLIER

  23. SUPPOSE THAT THE LUMP SUM TAX IS RAISED BY $666 2/3

  24. SUPPOSE THAT THE LUMP SUM TAX IS RAISED BY PREDICTION!!!!!!! A.D. WILL FALL BY $666 2/3 $2000

  25. NET TAX CHANGE CHANGE IN MPC = - X AD MPS LUMP SUM TAX MULTIPLIER 3 4 3 - - = 1 4 .75 - 3 - .25

  26. NET TAX CHANGE CHANGE IN MPC = - X AD MPS LUMP SUM TAX MULTIPLIER -2000 X +666 2/3 -3 =

  27. STANDARD SETUP CHANGE LUMP NET TAX = IN SUM X TAX CHANGE A.D. MULT.

  28. NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER NEVER VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE VIOLATE THIS THIS THIS THIS THIS THIS THIS THIS THIS THIS THIS THIS THIS THIS THIS THIS THIS SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP SETUP

  29. FINAL NOTE! TAXATION AND G CAN MOVE INDEPENDENTLY OF ONE ANOTHER. DO NOT ASSUME THAT IF T IS CUT G WILL BE CUT DO NOT ASSUME THAT IF T IS RAISED G WILL BE RAISED

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