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Chapter 13: Spending and Output in the Short Run Slide 2
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Introduction
Spending, in the short run, may not be sufficient to support a normal level of output.
Therefore, recessionary gaps are caused by insufficient aggregate spending.
Chapter 13: Spending and Output in the Short Run Slide 3
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Introduction
John Maynard KeynesEconomist, diplomat, financier, journalist,
and patron of the artsPublications include:
The Economic Consequences of the PeaceThe General Theory of Employment, Interest,
and Money
Chapter 13: Spending and Output in the Short Run Slide 4
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Introduction
John Maynard KeynesThe General Theory:
Revolutionized economic policyPredicted that a decrease in aggregate
spending could create a recessionary gapSuggests that government policy could be used
to restore full employment
Chapter 13: Spending and Output in the Short Run Slide 5
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
The Keynesian Model’s Crucial Assumption: Firms Meet Demand at Preset Prices
In the short run, firms meet the demand for their products at preset prices.Firms do not respond to every change in
the demand for their products by changing their prices.
Instead, they typically set a price for some period, then meet the demand at that price.
Chapter 13: Spending and Output in the Short Run Slide 6
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
The Keynesian Model’s Crucial Assumption: Firms Meet Demand at Preset Prices
In the short run, firms meet the demand for their products at preset prices.By “meeting the demand,” we mean that
firms produce just enough to satisfy their customers at the prices that have been set.
Chapter 13: Spending and Output in the Short Run Slide 7
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The Keynesian Model’s Crucial Assumption: Firms Meet Demand at Preset Prices
Meeting Demand at Preset Prices:Is a logical management decision because
of menu costs.Prices should be changed only if the
benefit exceeds the menu cost.In the long run firms will change prices.
Chapter 13: Spending and Output in the Short Run Slide 8
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The Keynesian Model’s Crucial Assumption: Firms Meet Demand at Preset Prices
Economic NaturalistWill new technologies eliminate menu
costs?Keynesian theory assumes that menu cost
prevent firms from changing prices.Many new technologies (bar codes) have
reduced menu cost and increased price flexibility.
Chapter 13: Spending and Output in the Short Run Slide 9
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
The Keynesian Model’s Crucial Assumption: Firms Meet Demand at Preset Prices
Economic NaturalistWill new technologies eliminate menu
costs?Pricing decisions also require market analysis,
strategic considerations, and cost analysiso These factors are a component of menu costs.
Chapter 13: Spending and Output in the Short Run Slide 10
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Planned Aggregate ExpenditureTotal planned spending on final goods and
services
Chapter 13: Spending and Output in the Short Run Slide 11
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Planned Aggregate Expenditure
The Components of Planned Aggregate ExpenditureConsumer expenditure or Consumption (C)
Household spending on durables, nondurables, and services
Chapter 13: Spending and Output in the Short Run Slide 12
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Planned Aggregate Expenditure
The Components of Planned Aggregate ExpenditureInvestment (I)
New capital goods spendingNew residential spendingIncreases in inventories
Chapter 13: Spending and Output in the Short Run Slide 13
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Planned Aggregate Expenditure
The Components of Planned Aggregate ExpenditureGovernment purchases
Federal, state, and local spending on goods and services
Chapter 13: Spending and Output in the Short Run Slide 14
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Planned Aggregate Expenditure
The Components of Planned Aggregate ExpenditureNet exports
Exports - imports
NX G I C PAE
Chapter 13: Spending and Output in the Short Run Slide 15
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Planned Spending Versus Actual SpendingIn the Keynesian model, output is
determined by PAE.Actual expenditures may not equal PAE.
If inventories are larger than expected:o I > planned Investment (IP)
If inventories are smaller than expected:o I < IP
Chapter 13: Spending and Output in the Short Run Slide 16
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
ExampleActual and planned investment
Fly-by-Night Kite Co. produces $5 million of kites per year.
Expected sales = $4.8 million and planned inventory = $200,000
Capital expenditure = $1 million
Chapter 13: Spending and Output in the Short Run Slide 17
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
ExampleIf actual sales are:
$4,600,000 instead of $4,800,000o IP = $1,000,000 + $200,000 = $1,200,000o I = $1,200,000 + $200,000 = $1,400,000o I > IP
$4,800,000o IP = $1.2 m. = I
Chapter 13: Spending and Output in the Short Run Slide 18
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
ExampleIf actual sales are:
$5,000,000 o IP = $1,000,000 + $200,000 = $1,200,000o I = $1,200,000 - $200,000 = $1,000,000o I < IP
Chapter 13: Spending and Output in the Short Run Slide 19
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Planned Aggregate Expenditure
NX G I C PAE P
Chapter 13: Spending and Output in the Short Run Slide 20
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Planned Aggregate Expenditure
Hey Big Spender! Consumer Spending and the EconomyConsumption (C) accounts for two thirds of
total spendingThe primary determinant of C is
disposable income or Y - T
Chapter 13: Spending and Output in the Short Run Slide 21
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Consumption FunctionThe relationship between consumption
spending and its determinants, in particular, disposable (after-tax) income
Chapter 13: Spending and Output in the Short Run Slide 22
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Planned Aggregate Expenditure
Relating Consumption to Income and Other DeterminantsThe consumption function:
C = a constant; represents the non income determinants of C
Consumer optimismWealthReal interest rates
T)- c(Y C C
Chapter 13: Spending and Output in the Short Run Slide 23
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Economic NaturalistWhat effect did the 2000-2002 decline in
the U.S. stock market values have on consumption spending?
From March 2000 to March 2002 the S&P 500 fell 49%.
Households lost $6.5 trillion of wealth in two years
Chapter 13: Spending and Output in the Short Run Slide 24
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Economic NaturalistWhat effect did the 2000-2002 decline in
the U.S. stock market values have on consumption spending?
$1 decrease in wealth reduces C by 3 to 7 cents/year
The $6.5 trillion loss could reduce C between $195 and $455 billion
Chapter 13: Spending and Output in the Short Run Slide 25
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Economic NaturalistWhat effect did the 2000-2002 decline in
the U.S. stock market values have on consumption spending?
C rose from 2000-2002o Higher housing prices (greater wealth)o Lower interest rateso Increase in disposable income (Y – T)
Chapter 13: Spending and Output in the Short Run Slide 26
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Consumption Function
c = marginal propensity to consume
c = the amount by which consumption rises when disposable income rises by $1; 0 < c < 1
T)- c(Y C C
Chapter 13: Spending and Output in the Short Run Slide 27
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
A Consumption Function
Disposable income Y-T
Co
nsu
mp
tio
n s
pen
din
g C
Consumption function
Slope = c = MPCC
T)- c(Y C C
Chapter 13: Spending and Output in the Short Run Slide 28
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
The U.S. Consumption Function, 1960-2001
Chapter 13: Spending and Output in the Short Run Slide 29
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Planned Aggregate Expenditure and OutputThe relationship between changes in
production and income and PAEC is a large part of PAEC depends on YPAE depends on Y
Chapter 13: Spending and Output in the Short Run Slide 30
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
ExamplePAE = C + IP + G + NXC = C + c(Y – T)PAE = C + c(Y – T) + IP + G + NXC = 620; c = 0.8; T = 250; IP = 220; G
= 330; NX = 20
Chapter 13: Spending and Output in the Short Run Slide 31
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
ExampleThen:
20 330 220 250) - 0.8( 620 Y PAE
20 330 220 0.8(250) - 0.8 620 Y PAE
20 330 220 2000.8 620 - Y PAE
Y- PAE 0.8 20) 330 220 200(620
Y PAE 0.8 960
Chapter 13: Spending and Output in the Short Run Slide 32
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Example
If Y increases by $1, C will increase by 80 cents (c = 0.80)
C is part of PAEPAE increases by 80 cents ($1 X 0.80)
NX G I C Y PAE 0.8 960
Chapter 13: Spending and Output in the Short Run Slide 33
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Example
There are two parts to PAE:Autonomous expenditure (960)
o Is independent of outputo Does not vary when output changes
Induced expenditure (0.8Y)o Depends on output (Y)
Y PAE 0.8 960
Chapter 13: Spending and Output in the Short Run Slide 34
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Example
PAE = autonomous expenditure + induced expenditure
Y PAE 0.8 960
Chapter 13: Spending and Output in the Short Run Slide 35
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Short-run Equilibrium OutputKeynesian Assumption
Producers meet demand at preset prices in the short-run
Short-run equilibrium: Y = PAE
Chapter 13: Spending and Output in the Short Run Slide 36
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Short-run Equilibrium OutputThe level of output at which output Y
equals planned aggregate expenditure PAE
Short-run equilibrium output is the level of output that prevails during the period in which prices are predetermined
Chapter 13: Spending and Output in the Short Run Slide 37
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Numerical Determination of Short-Run Equilibrium Output
(1) Output
Y
4,000 4,160 -160 No
4,200 4,320 -120 No
4,400 4,480 -80 No
4,600 4,640 -40 No
4,800 4,800 0 Yes
5,000 4,960 40 No
5,200 5,120 80 No
(2) Planned aggregate expenditure
PAE = 960 + 0.8Y
(3)
Y - PAE
(4)
Y = PAE?
•Equilibrium: Y = PAE; Y (4,800) = PAE (4,800)•If Y = 4,000 < PAE = 960 + .8(4000) = 4,160•If Y = 5,000 > PAE = 960 + .8(5,000) = 4,960
Chapter 13: Spending and Output in the Short Run Slide 38
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Determination of Short-Run Equilibrium Output (Keynesian Cross)
Output Y
Pla
nn
ed a
gg
reg
ate
exp
end
itu
re P
AE
960
Expenditure line PAE = 960 + 0.8Y
Slope = 0.8
45o
Y = PAE
4,800
Equilibrium• PAE intersects the 45o line @ 4,800Disequilibrium• < 4,800, PAE > Y• > 4,800, PAE < Y
Chapter 13: Spending and Output in the Short Run Slide 39
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
A Decline In Planned Spending Leads To A Recession
Output Y
Pla
nn
ed a
gg
reg
ate
exp
end
itu
re P
AE
960
E
Expenditure line PAE = 960 + 0.8Y
45o
Y = PAE
4,800Y*
Recessionary gap
F
Expenditure line PAE = 950 + 0.8Y
A decline in autonomous aggregate expenditure (C) shifts the expenditure line down
950
4,750
Chapter 13: Spending and Output in the Short Run Slide 40
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Determination of Short-Run Equilibrium Output After A Fall In Spending
(1) Output
Y
4,600 4,630 -30 No
4,650 4,670 -20 No
4,700 4,710 -10 No
4,750 4,750 0 Yes
4,800 4,790 10 No
4,850 4,830 20 No
4,900 4,870 30 No
4,950 4,910 40 No
5,000 4,950 50 No
(2) Planned aggregate expenditure
PAE = 960 + 0.8Y
(3)
Y - PAE
(4)
Y – PAE?
•If Y = 4,800 > PAE = 4,790•Y = PAE @ 4,750•Output Gap: Y* (4,800) > Y (4,750)
Chapter 13: Spending and Output in the Short Run Slide 41
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
ObservationsOther factors remaining constant, a decline
in autonomous spending causes short-run equilibrium output to fall and creates a recessionary gap.
A decrease in autonomous spending can be caused by a reduction in C, IP, G, and/or NX.
Chapter 13: Spending and Output in the Short Run Slide 42
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Economic NaturalistWhat caused the 1990-1991 recession?
Decline in consumer confidenceCredit crunch
Chapter 13: Spending and Output in the Short Run Slide 43
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Economic NaturalistWhy was the deep Japanese recession of
the 1990s bad news for the rest of East Asia?
Recession in Japan reduced Japanese importsThe decline in East Asian exports to Japan
reduced domestic spending in non-export sectors
Chapter 13: Spending and Output in the Short Run Slide 44
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Economic NaturalistWhat caused the 2001 recession in the
United States?Reduction in investment spending
Chapter 13: Spending and Output in the Short Run Slide 45
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
Income-Expenditure MultiplierThe effect of a 1-unit increase in
autonomous expenditure on short-run equilibrium output
For example, a multiplier of 5 means that a 10-unit decrease in autonomous expenditure reduces short-run equilibrium output by 50 units
Chapter 13: Spending and Output in the Short Run Slide 46
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
The MultiplierRecall
PAE = 960 + 0.8Y, equilibrium Y = 4,800C fell by 10PAE = 950 + 0.8Y, equilibrium Y = 4,750
Chapter 13: Spending and Output in the Short Run Slide 47
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
The Multiplier EffectThe decrease in the equilibrium Y was 5
times the fall in C.The income-expenditure multiplier
equaled 5.The size of the multiplier is influenced by
the MPC.
Chapter 13: Spending and Output in the Short Run Slide 48
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Planned Aggregate Expenditure
What Do You Think?Why is the change in equilibrium Y a
multiple of the change in autonomous spending?
Chapter 13: Spending and Output in the Short Run Slide 49
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
In the Keynesian Model:Recessionary and expansionary gaps are
caused by inadequate or excessive spending, respectively.
Stabilization policies are used to affect planned aggregate expenditures to eliminate output gaps.
Chapter 13: Spending and Output in the Short Run Slide 50
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Stabilization PoliciesGovernment policies that are used to affect
planned aggregate expenditure, with the objective of eliminating output gaps
Chapter 13: Spending and Output in the Short Run Slide 51
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Expansionary PoliciesGovernment policy actions intended to
increase planned spending and output
Chapter 13: Spending and Output in the Short Run Slide 52
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Contractionary PoliciesGovernment policy actions designed to
reduce planned spending and output
Chapter 13: Spending and Output in the Short Run Slide 53
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Tools of Stabilization PolicyMonetary policyFiscal policy
Chapter 13: Spending and Output in the Short Run Slide 54
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Tools of fiscal policyGovernment spending
Direct effect on PAE
TaxationIndirect effect on PAE
Transfer paymentsIndirect effect on PAE
Chapter 13: Spending and Output in the Short Run Slide 55
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
An Increase In Government Purchases Eliminates A Recessionary Gap
Pla
nn
ed a
gg
reg
ate
exp
end
itu
re P
AE
960
Expenditure line PAE = 960 + 0.8Y
E
An increase in G shifts the expenditure line upward
Output Y
Y = PAE
F
45o
4,800
Recessionary gap
Expenditure line PAE = 950 + 0.8Y
950
4,750
Y*
Chapter 13: Spending and Output in the Short Run Slide 56
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Economic NaturalistWhy is Japan building roads nobody wants
to use?Japan has a recessionary gap$1 trillion spending on public worksThe policy has not been successful to date
o Was not large enougho Wasteful spending may have demoralized
consumers
Chapter 13: Spending and Output in the Short Run Slide 57
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Economic NaturalistDoes military spending stimulate the
economy?
Chapter 13: Spending and Output in the Short Run Slide 58
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
U.S. Military Expenditures as a Share of GDP, 1940-2001
Chapter 13: Spending and Output in the Short Run Slide 59
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Taxes, Transfers, and Aggregate SpendingTaxes and transfers affect PAE indirectly
Chapter 13: Spending and Output in the Short Run Slide 60
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
ExampleUsing a tax cut to close a recessionary gap
Chapter 13: Spending and Output in the Short Run Slide 61
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
ExampleAssume
Recessionary gap = 50MPC = 0.8
Use a tax cut to eliminate the gapThe tax cut must increase PAE by 10For every dollar reduction in taxes,
consumption will increase by 80 cents (MPC = 0.8)
Chapter 13: Spending and Output in the Short Run Slide 62
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
ExampleAssume
Recessionary gap = 50MPC = 0.8
Use a tax cut to eliminate the gapChange in spending (10) = tax cut x MPC (0.8)
o Tax cut = change in spending/MPC = 10/0.8 = 12.5
An increase in transfers of 12.5 will also raise PAE by 10 (12.5 x 0.8) = 10
Chapter 13: Spending and Output in the Short Run Slide 63
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Economic NaturalistWhy did the federal government send out
millions of $300 and $600 checks to households in 2001?
In the spring 2001, the U.S. economy was slowing.
Summer 2001, families received $38 billion in tax rebates.
Chapter 13: Spending and Output in the Short Run Slide 64
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Stabilizing Planned Spending: The Role of Fiscal Policy
Economic NaturalistWhy did the federal government send out
millions of $300 and $600 checks to households in 2001?
Survey indicated that only 22% of the households anticipated spending most of their rebates.
Tax cuts were accompanied by increases in government spending to stimulate PAE.
Chapter 13: Spending and Output in the Short Run Slide 65
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Fiscal Policy as a Stabilization Tool: Three Qualifications
Fiscal Policy and the Supply SideFiscal policy may affect potential output as
well as PAE.Government spending and potential output
o Public capitalo R & Do Human Capital
Chapter 13: Spending and Output in the Short Run Slide 66
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Fiscal Policy as a Stabilization Tool: Three Qualifications
Fiscal Policy and the Supply SideFiscal policy may affect potential output as
well as PAE.Taxation and potential output
o Tax break for new investmento Tax break on interest income may stimulate saving
Fiscal policy affects both PAE and Y*.
Chapter 13: Spending and Output in the Short Run Slide 67
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Fiscal Policy as a Stabilization Tool: Three Qualifications
The Problem of DeficitsSustaining government deficits reduce
saving and investment in new capital goods.
Chapter 13: Spending and Output in the Short Run Slide 68
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Fiscal Policy as a Stabilization Tool: Three Qualifications
The Problem of DeficitsThe goal of keeping deficits low may
reduce the incentive to use fiscal policy to control a recessionary gap.
Chapter 13: Spending and Output in the Short Run Slide 69
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Fiscal Policy as a Stabilization Tool: Three Qualifications
The Relative Inflexibility of Fiscal PolicyA lack of flexibility may reduce the
effectiveness of fiscal policyTwo limits to fiscal policy flexibility
o The problem of time lags and the legislative processo Competing political objectives
Chapter 13: Spending and Output in the Short Run Slide 70
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Fiscal Policy as a Stabilization Tool: Three Qualifications
The Relative Inflexibility of Fiscal PolicyA lack of flexibility may reduce the
effectiveness of fiscal policyAutomatic stabilizers help offset the inflexibility
of fiscal policyo Transfer paymentso Income tax collections
Fiscal policy may be useful to address prolonged periods of recession
Chapter 13: Spending and Output in the Short Run Slide 71
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Copyright c 2004 by The McGraw-HillCompanies, Inc. All rights reserved.
Fiscal Policy as a Stabilization Tool: Three Qualifications
Automatic StabilizersProvisions in the law that imply automatic
increases in government spending or decreases in taxes when real output declines