Lesson Plan - Government Fiscal Policy


I. Addition of Government Spending to the Keynesian Model
- What happens to Aggregate Expenditures?
- What happens to equilibrium income/output?
- the autonomous spending multiplier revisted
- discretionary fiscal policy
- recessionary policy
- inflationary policy
II. Addition of Taxes to the Keynesian Model
- which component of AE does taxes affect, C, I, or G?
- how is consumption affected?
- assume that taxes are autonomous
- the impact of taxes on disposable income (Yd)
- AE after the addition of taxes
- mathematically
- graphically
- impact on consumption?
- impact on savings?
- what is equilibrium now?
- Y = AE
- I + G (injections) = S + T (leakages)
- unplanned I = 0
- the tax multiplier
- tax multiplier = change in Y/change in T
- end up with tax multiplier = - mpc/mps
- interpretation of the tax multiplier?
- balanced budget multiplier
- suppose change in G = change in T, by how much does equilibrium Y change?
- always equals 1. why?
- what does this mean?
III. Keynesian Fiscal Policy
- what is fiscal policy?
- policy changes in government spending or taxation
- expansionary fiscal policy
- enacted in order to increase AE and equilibrium Y. What works?
- increase in G
- decrease in T
- both an increase in G and a decrease in T
- balanced budget increase in G (what does this mean?)
- recessionary fiscal policy
- enacted in order to decrease AE and equilibrium Y. What works?
- decrease in G
- increase in T
- both a decrease in G and an increase in T
- balanced budget decrease in G
IV. Non-Discretionary Fiscal Policy
- definition?
- changes in government spending or taxes that are automatic.
- examples
- automatic tax adjustments
- automatic spending adjustments
V. Full Employment Budget
- what is the full employment budget? (Suppose the *actual* budget is in surplus (or deficit) but we are not at full employment Y. Does the surplus (or deficit) reflect government fiscal policy?)
- not necessarily
- examples