11-1 Fiscal Policy • Fiscal policy: The use of governmen taxes and spending to alter macroeconomic outcomes • The federal budget is a tool t shift aggregate demand and the alter macroeconomic outcomes
taxes and spending to alter
macroeconomic outcomes
shift aggregate demand and thereby
alter macroeconomic outcomes
payments deficits and excessive
aggregate demand, income transfers
spends more than #$%& trillion a year
" 'ollects nearly #$ trillion a year in
taxes! (ith nearly half that from
individual income taxes
more! borro(in additional funds
demand+
" Purchasin more or fe(er oods and
services
#D
recessionary G-P ap of #".. billion
• From a /eynesian perspective! the
solution is to et someone to spend
more on oods and services
aggregate demand
() curve to the right*
of fiscal stimulus
demand
depends on the value of the multiplier
increases disposable income, which
().
in consumption = ×
stimulus than a same sie increase in
government purchases
MPC =
in spending in consumption = ×
stimulus injection transfer payments = ×
and fiscal restraint is more appropriate
• Inflationary G-P ap: The amount by
which e&uilibrium -)! exceeds full
employment
intended to reduce $shift% aggregate demand
may be offset by the crowding out of
private expenditure.
sector borrowing $and spending%
caused by increased government