Government expenditures > Government revenues. Automatic stability reduces, but does NOT correct economic instability! The more progressive the tax system, the greater the economy’s built-in stability. The size of automatic stability depends on the responsiveness of changes in taxes This is also an example of anTransfers and subsidies rise when GDP falls and when these government payments rise, net tax revenues fall along with GDP. Taxes automatically fall with GDP when incomes fall. Taxes automatically rise with GDP when incomes rise. Reduce disposable incomes and therefore, spending. Automatic stabilizers exist because net taxes change with GDP wince taxes What is an example of automatic stabilizers? Loanable funds, causes interest rates to fall, and crowds in some private investment.Ĥ8. This decreases the demand for Crowding-in occurs when we are running on a budget surplus and, therefore, we don’t need to borrow money to finance our budget. Changes in government spending and taxation to manipulate spending! So, the change in consumption will be less than the tax change causing its overall impact to be less. Taxes change income and, thus, consumption by an amount equal to the tax times NO . if changes are equal, government spending will have a larger impact since it What is the formula for the spending multiplier?ĭo changes in government spending and taxation have equal results? Average propensity to consume is the % of income that is consumed.ģ9. Average propensity to save is the % of income that is saved. Marginal propensity to consume is the % of any change in income that is consumed. Marginal propensity to save is the % of any change in income that is saved. Unemployment rate = # unemployed / # labor force. The unemployment rate represents the % of the labor force not employed! How does one calculate the unemployment rate? SEASONAL: Unemployment caused by changes in the weather.ģ2. Insufficient aggregate demand for people actively seeking jobs.Ĥ. This happens as the demand for certain types of labor changes because skills are Government job training programs. Job mismatch . Skills don’t match the skills businesses want . Basis for They may have quit one job to find another, or they may be trying to find the best Discouraged workers (those who want a job, but are NOT actively seeking one).ģ1. Property sold/transferred, used items, secondhand sales, illegal activities, purelyįinancial transactions, public transfers (social security, cash welfare benefits, etcprivate transfers (allowances, alimony payments, etc.), or the sale of stocks and .), Items excluded from GDP include: non-production transactions, existing goods or GDP represents the total market value of all final goods and services produced in a Real GDP adjusts Nominal GDP for changes in the price level (inflation andĭeflation). Economic growth illustrated via a PPC diagram and LRAS. Economic growth & the extended AS-AD model.ġ3. Extended AS-AD models with inflationary and recessionary gaps.ġ2. Extended AS-AD model with a short-run inflationary gap.ġ0. Short-run aggregate supply curve (SRAS).ĩ.
Classical vs. Keynesian aggregate supply curves.Ħ. Expansionary (“easy”) monetary policy (Buy bonds, ↓ discount rate, ↓ reserve requirement).Ĥ. Aggregate supply curve (with breakdown of sections).ģ.
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