ch09The Government and Fiscal Policy(宏观经济学Karl Case, Ray Fair)概要1.pptVIP

The Governmentand Fiscal Policy Government in the Economy Nothing arouses as much controversy as the role of government in the economy. Government can affect the macroeconomy in two ways: Fiscal policy is the manipulation of government spending and taxation. Monetary policy refers to the behavior of the Federal Reserve regarding the nation’s money supply. Government in the Economy Discretionary fiscal policy refers to deliberate changes in taxes or spending. The government can not control certain aspects of the economy related to fiscal policy. For example: The government can control tax rates but not tax revenue. Tax revenue depends on household income and the size of corporate profits. Government spending depends on government decisions and the state of the economy. Net Taxes (T), and Disposable Income (Yd) Net taxes are taxes paid by firms and households to the government minus transfer payments made to households by the government. Disposable, or after-tax, income (Yd ) equals total income minus taxes. Adding Net Taxes (T) and Government Purchases (G) to the Circular Flow of Income When government enters the picture, the aggregate income identity gets cut into three pieces: The Budget Deficit A government’s budget deficit is the difference between what it spends (G) and what it collects in taxes (T) in a given period: Adding Taxes to theConsumption Function The aggregate consumption function is now a function of disposable, or after-tax, income. Equilibrium Output: Y = C + I + G Finding EquilibriumOutput/Income Graphically The Leakages/Injections Approach Taxes (T) are a leakage from the flow of income. Saving (S) is also a leakage. In equilibrium, aggregate output (income) (Y) equals planned aggregate expenditure (AE), and leakages (S + T) must equal planned injections (I + G). Algebraically, The Government Spending Multiplier The government spending multiplier is the ratio of the change in the equilibrium level of output to a change in government spend