Académique Documents
Professionnel Documents
Culture Documents
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Government in the Economy
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Net Taxes (T), and Disposable Income (Yd)
Yd Y T
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Adding Net Taxes (T) and Government Purchases
(G) to the Circular Flow of Income
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Adding Net Taxes (T) and Government Purchases
(G) to the Circular Flow of Income
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Equilibrium Output: Y = C + I + G
C 1 0 0 .7 5 Y d C 1 0 0 .7 5 ( Y T )
Finding Equilibrium for I = 100, G = 100, and T = 100
(All Figures in Billions of Dollars)
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
PLANNED PLANNED UNPLANNED
OUTPUT NET DISPOSABLE CONSUMPTION SAVING INVESTMENT GOVERNMENT AGGREGATE INVENTORY ADJUSTMENT
(INCOME) TAXES INCOME SPENDING S SPENDING PURCHASES EXPENDITURE CHANGE TO
Y T Yd Y T (C = 100 + .75 Yd) (Yd C) I G C+I+G Y (C
(C + I + G) DISEQUILIBRIUM
1,300 100 1,200 1,000 200 100 100 1,200 + 100 Output
1,500 100 1,400 1,150 250 100 100 1,350 + 150 Output
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Finding Equilibrium
Output/Income Graphically
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Leakages/Injections Approach
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Government Spending Multiplier
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Government Spending Multiplier
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Tax Multiplier
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Tax Multiplier
1
Y (in itia l in c re a s e in a g g re g a te e x p e n d itu re )
M PS
1 M PC
Y (T M PC ) T
M PS M PS
M PC
T a x m u ltip lie r
M PS
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Balanced-Budget Multiplier
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Fiscal Policy Multipliers
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Adding the International Sector
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Federal Government Surplus/Deficit as
a Percentage of GDP, 1970 I2000 IV
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Federal Government Debt as a
Percentage of GDP, 1970 I2000 IV
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Economys Influence on the
Government Budget
Fiscal drag is the negative effect on
the economy that occurs when
average tax rates increase because
taxpayers have moved into higher
income brackets during an
expansion.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Economys Influence on the
Government Budget
The full-employment budget is a
benchmark for evaluating fiscal
policy.
The full-employment budget is what
the federal budget would be if the
economy were producing at a full-
employment level of output.
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
The Economys Influence on the
Government Budget
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Appendix A:
The government spending and tax multipliers
C a b ( Y T ) Y b Y b tY a b T 0 I G
Yd Y T Y (1 b b t ) a b T 0 I G
T T 0 tY 1
Y (a b T0 I G )
1 b bt
I I0 multiplier value of autonomous
expenditures
G G 0
2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair
Appendix A: The Balanced-Budget Multiplier