TAILIEUCHUNG - Lecture Economics (6/e): Chapter 12 - Stephen L. Slavin

Chapter 13 - Money and banking. This chapter include objectives: The four jobs of money, what money is, M1, M2, and M3, the demand for money, the origins of banking, the creation and destruction of money, branch banking and bank chartering, the FDIC, the savings and loan debacle. | Chapter 12 Fiscal Policy and the National Debt 12-1 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives The deflationary gap The inflationary gap The multiplier and its applications Automatic stabilizers Discretionary fiscal policy Budget deficits and surpluses The public debt 12-2 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Fiscal Policy Fiscal policy is the manipulation of the federal budget to attain price stability, relatively full employment, and a satisfactory rate of economic growth To attain these goals, the government must manipulate its spending and taxes 12-3 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. There was no such thing as fiscal policy until John Maynard Keynes invented it in the 1930s He maintained that The only way out of the Depression was to boost aggregate demand by increasing government spending If we ran a big enough budget deficit, we could jump-start the economy and, in effect, spend our way out of the depression Putting Fiscal Policy into Perspective 12-4 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. It’s important that the aggregate supply of goods and services equals the aggregate demand for goods and services at just the level of spending that will bring about full employment at stable prices Putting Fiscal Policy into Perspective 12-5 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Equilibrium GDP tells us the level of spending in the economy Full-employment GDP tells us the level of spending necessary to get the unemployment rate down to 5% (which we have been calling full-employment) Fiscal policy is used to push equilibrium GDP toward full-employment GDP Putting Fiscal Policy into Perspective 12-6 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. The Deflationary Gap and the Inflationary Gap Equilibrium GDP is the level of output at which aggregate demand equals .

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