Bài giảng Macro - Chapter 10 Vote

CHAPTER 10SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGEFISCAL POLICYIn this chapter you will learnWhat fiscal policy is and what it is used forWhat discretionary fiscal policy is and its functionAbout the economy’s built-in stabilizersWhat a cyclically adjusted budget isThe problems, criticisms, and complications of fiscal policyChapter 10 TopicsLegislative MandatesFiscal Policy & the AD-AS ModelBuilt-In StabilizationEvaluating Fiscal PolicyProblems, Criticisms & ComplicationsLegislative MandatesGreat Depression  need for stabilization roleUnemployment Insurance introduced during World War IIGovernments regularly use fiscal policy to stabilize the economyChapter 10 TopicsLegislative MandatesFiscal Policy & the AD-AS ModelBuilt-In StabilizationEvaluating Fiscal PolicyProblems, Criticisms & ComplicationsDefinition:Deliberate changes of government expenditures taxesDependent upon deliberate decisions in ParliamentDiscretionary Fiscal PolicyExpansionary Fiscal PolicyRecessionary GapOptions: Increase Government SpendingDecrease TaxesSome Combination of the TwoDiscretionary Fiscal PolicyASAD0Price levelReal GDP (billions)PL0GDPfGDP0recessionarygapExpansionary Fiscal PolicyFigure 10-1ASAD0Price levelReal GDP (billions)PL0GDPfGDP0PL1AD1Figure 10-1Expansionary Fiscal PolicyContractionary Fiscal PolicyInflationary GapOptions: Decrease Government SpendingIncrease TaxesSome Combination of the TwoDiscretionary Fiscal PolicyReal GDP (billions)ASGDPfAD3PL3Price levelGDP3inflationarygapFigure 10-2Contractionary Fiscal PolicyReal GDP (billions)ASGDPfAD3PL2AD2Price levelFigure 10-2Contractionary Fiscal PolicyPL3Policy Options: G or T?depends on political views about size of governmentChapter 10 TopicsLegislative MandatesFiscal Policy & the AD-AS ModelBuilt-In StabilizationEvaluating Fiscal PolicyProblems, Criticisms & ComplicationsA tax or government expenditure which automatically:increases the deficit during recession phasedecreases the surplus during inflation phaseGovernment establishes tax rates, but does not set total taxesAutomatic or Built-In StabilizersG,TT = Net TaxesG (assumed constant)GDP0GDP1T1Automatic or Built-In StabilizersFigure 10-3Deficit{G,TTGGDP0GDP2SurplusT2Automatic or Built-In StabilizersFigure 10-3the stabilizers will automatically generate an expansionary budget deficit when GDP is lowand a contractionary surplus when GDP is highAutomatic or Built-In StabilizersThe built-in stability depends on:Tax Progressivity Progressive Proportional RegressiveThe more progressive the tax system, the greater the automatic stabilizationAutomatic or Built-In StabilizersChapter 10 TopicsLegislative MandatesFiscal Policy & the AD-AS ModelBuilt-In StabilizationEvaluating Fiscal PolicyProblems, Criticisms & ComplicationsCyclically Adjusted Budgetautomatic stabilizers can mask the direction of discretionary fiscal policythe cyclically adjusted budget shows what the budget balance would be if the economy were operating at full employment © 2002 McGraw-Hill Ryerson Ltd.Macroeconomics, Chapter 1022500real GDPG, TTGGDP1(year 1)450GDP2(year 2)Figure 10-4full-employment GDP the cyclically adjusted deficit is zero in year 1 at GDP1it is also zero in year 2 at GDP2Cyclically Adjusted Budgetthe deficit is a by-product of the recession© 2002 McGraw-Hill Ryerson Ltd.Macroeconomics, Chapter 1023500475450425G, Treal GDPGT1T2GDP3(year 3)GDP4(year 4) the cyclically adjusted deficit is zero in year 3taxes are reducedfull-employment GDPFigure 10-4Cyclically Adjusted Budget $50 billion deficit due to recession $25 billion deficit due to expansionary fiscal policyeconomy enters a recession in year 4Recent Canadian Fiscal Policyneutral to mildly expansionary in the early 1990scontractionary in later yearsactual deficits have given way to actual surplusesChapter 10 TopicsLegislative MandatesFiscal Policy & the AD-AS ModelBuilt-In StabilizationEvaluating Fiscal PolicyProblems, Criticisms & ComplicationsProblems, Criticisms, & ComplicationsProblems of Timing Recognition Lag Administration Lag Operational LagA Political Business Cycle?Offsetting Provincial & Municipal FinanceCrowding-Out Effectexpansionary fiscal policyhigher interest ratesreduction in interest-sensitive spendingmay not be significant in a recessionfiscal policy can be accommodated by increases in money supply Problems, Criticisms, and Complicationssome portion of the potential effect of expansionary fiscal policy may be dissipated in the form of inflationillustratedProblems, Criticisms, and ComplicationsAD0ASPL1Price levelFigure 10-5Fiscal Policy, AS & InflationReal GDP (billions)AD1GDP0GDPfPL2GDP1AD0ASPL1Price levelFigure 10-5Fiscal Policy, AS & InflationReal GDP (billions)AD1GDP0GDPfPL2GDP1price level risesGDP increases only to GDP1Fiscal Policy in the Open EconomyShocks Originating from AbroadNet Export Effectrecessionexpansionary fiscal policyhigher domestic interest ratesincreased foreign demand for C$C$ appreciatesnet exports fallpartial offset to expansionary fiscal policy© 2002 McGraw-Hill Ryerson Ltd.Macroeconomics, Chapter 1032Table 10-1© 2002 McGraw-Hill Ryerson Ltd.Macroeconomics, Chapter 1033inflationcontractionary fiscal policylower domestic interest ratesdecreased foreign demand for C$C$ depreciatesnet exports risepartial offset to contractionary fiscal policyTable 10-1Supply-Side Fiscal Policytax changes may alter aggregate supply & affect the results of fiscal policysaving & investmentwork incentivesrisk-takingexamine the effects of a tax cutSupply-Side Fiscal PolicyAS1AD1Price levelReal GDP (billions)PL1GDP1Figure 10-6PL2AD2GDP2AS2PL3GDP3Supply-Side Fiscal Policymost economists are skeptical about the supply-side effects of tax cutsweak effectstimingChapter 10 TopicsLegislative MandatesFiscal Policy & the AD-AS ModelBuilt-In StabilizationEvaluating Fiscal PolicyProblems, Criticisms & Complications