(17)--3.3经济学导论课件.pptVIP

* There’s an implicit assumption in this analysis that overall tax revenues remain unchanged in spite of the tax incentives. Taken literally, we would have to assume that other taxes are raised to exactly offset the loss in revenue from the saving incentives. Without this implicit assumption, total tax revenues would fall, causing saving to fall, and shifting the supply curve leftward, which would mitigate the effects shown here. You may or may not wish to point this out to your students. If you are especially nitpicky, or your students are particularly sharp, then it’s probably worth telling them. (Note, however, that the assumption of constant total revenue remains implicit in the textbook’s discussion of this policy.) * As with Policy 1, you may wish to note that we are assuming the tax credit does not significantly reduce the overall amount of taxes. If total taxes fell, then the supply curve would shift (in addition to the demand curve). However, our intention here is to focus solely on the demand shift. Some students ask why the budget deficit shifts the S curve rather than the D curve; after all, governments finance their deficits by borrowing. The reason is that we have defined supply of L.F. as the flow of resources available to fund private investment. The budget deficit reduces this supply of resources. In the real world, we sometimes see increases in government budget deficits that are not accompanied by dollar-for-dollar decreases in investment, as the analysis on this slide would predict. Keep in mind, however, that the analysis here is for the closed economy model. In an open economy, firms can finance investment by borrowing from abroad in the face of a decrease in the domestic supply of loanable funds. This, of course, does not mean that budget deficits are “okay” in an open economy, because the extra indebtedness requires service, such as interest or dividend payments, which reduces the amount of income remaining for resident