Macro 16
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This document provides an overview and summary of key topics covered in a macroeconomics lecture and final exam, including: - The final exam will cover chapters 17-21 and topics like the government budget, taxes, deficits, debt, fiscal policy, and supply-side economics. - The government uses taxes and spending to achieve the objectives of low unemployment and low inflation. It collects income, social security, and other taxes and runs deficits when spending exceeds revenues. - Fiscal policy uses changes in government spending and taxes to expand or contract aggregate demand and output in the economy. However, crowding out and multipliers may reduce the impact of fiscal policy. - Supply-side policies like lower marginal
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Macro 16
- 3. Final Exam Wednesday June 27th Chapters 17- 21
- 4. Chapter 17 The Government Budget Taxes and Spending
- 8. Tax Revenues Income Taxes Social Security Taxes Other
- 10. Progressive The more you earn, the higher the rate
- 12. DeïŹcits and Debt Government Spending and Revenue
- 14. Balanced Budget Spending exactly equals revenues
- 18. Debt $15 trillion $45,455 per person
- 20. Why would you want government to go into debt? Donât have to pay Future larger economy
- 21. Debt Investment Only if the return is higher than the interest rate
- 22. How to reduce deïŹcits Higher taxes Lower spending
- 23. Entitlements Guaranteed benefits 1960 - 20% 2017 - 60%
- 24. Interest Expense $240 billion 2.0% current rate 6.2% historical 1962-2017
- 26. Solution to Debt Economic Growth
- 27. Spending Taxes Aggregate Demand Expand Increase Decrease Right Contract Decrease Increase Left Fiscal Policies
- 29. P2 Price Level Real GDP orY Increase Aggregate Demand Lower Taxes and/or Increase Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 Unemployment
- 30. P3 Price Level Real GDP orY Decrease Aggregate Demand Raise Taxes and/or Decrease Spending 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 InïŹation
- 33. More Borrowing Crowding Out Increase interest rates
- 34. Lower Taxes People may just save more and not spend
- 35. More Spending Now get free stuff. No new spending
- 36. Get a free iPhone But your taxes will go up to pay for it No change in total spending
- 37. Tax Rate % $ Tax Revenue Laffer Curve 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Dropped Top Marginal Income Tax Rate from 70% to 28%
- 38. Supply Side Tax Changes Lower marginal tax rates incentivize people to work more and firms to create more.
- 39. P4 Price Level Real GDP orY Fiscal Policy and Negative Supply Shock 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 P2 P3 InïŹation and Recession StagïŹation
- 40. P3 Price Level Real GDP orY Increase Long Run Aggregate Supply Lower Marginal Tax Rates 18 Long Run Aggregate Supply Short Run Aggregate Supply 19 P1 Aggregate Demand 17 Lower Prices Increase Output
- 41. Time Lags Do you really know? Congress approve Effect lag Take 1- 3 years Counterproductive
- 42. Multiplier May not be as large as Keynes calculated
- 44. Automatic Stabilizers Job Unemployed Job Taxes Insurance Taxes