TAILIEUCHUNG - Lecture Principles of economics (Asia Global Edition) - Chapter 22

Chapter 22 - Spending, output, and fiscal policy. After completing this unit, you should be able to: Identify the key assumptions of the basic Keynesian model and explain how this affects firms' production decisions; discuss the determination of planned investment and aggregate consumption spending and how these concepts are used to develop a model of planned aggregate expenditure; analyze how an economy reaches short-run equilibrium in the basic Keynesian model, using both numbers and graphs, | Spending, Output, and Fiscal Policy Chapter 22 McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Identify the key assumptions of the basic Keynesian model and explain how this affects the production decisions made by firms Discuss the determinations of planned investment and aggregate consumption spending and how these concepts are used to develop a model of planned aggregate expenditure Analyze, using graphs, how an economy reaches short-run equilibrium in the basic Keynesian model Show how a change in planned aggregate expenditure can cause a change in short-run equilibrium output and how this is related to the income-expenditure multiplier 5. Explain why the basic Keynesian model suggests that fiscal policy is useful as a stabilization policy, and discuss the qualifications that arise in applying fiscal policy in real-world situations Recessionary Gap Great Depression Available resources are unemployed Public’s willingness or ability to spend declines A decrease in spending leads to lower production Laid-off workers reduce their spending Insufficient spending to support the normal level of production Conventional economic policy of the 1920s and 1930s would not solve this problem John Maynard Keynes revolutionized economic thought and public policy John Maynard Keynes (1883 – 1946) After World War I, Keynes recognized that the terms of the peace would lead to another war German war reparations would prevent growth and recovery The General Theory of Employment, Interest, and Money (1936) is his best-known work Problem was explaining why economies kept a recessionary gap for long periods Aggregate spending is too low for full employment Stabilization policies use government spending or taxes to substitute for spending in other sectors Keynesian Model Building block for current theories of short-run economic fluctuations and stabilization policies In the short run, firms meet demand at preset prices Firms .

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• Principles of economics
• Lecture Principles of economics
• Market imperfections
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• Short run equilibrium
• Ten principles of economics
• People face tradeoffs
• Opportunity cost
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• Economics of information
• Consumer choice
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• Short run economic fluctuations
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• Macroeconomic policy
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• Stabilize the economy
• Monetary policy