In addition to active fiscal policy, the government can use automatic stabilizers such as unemployment benefits to smooth out fluctuations in the business cycle. The tax multiplier which is, -MPC/MPS, computes how much a change in taxes affects spending. If the government is worried about justifying new debt, the government can use equal amounts of spending and taxes. That is ΔG/(1-MPC), ΔI//(1-MPC), and ΔC//(1-MPC). AP Macro Exam Review 2021-22 - Unit 3: National Income and Price Determination. When using active fiscal policy, the government considers the spending multiplier. During an inflationary period, the goal of fiscal policy is move the economy back to full employment. When the government uses expansionary fiscal policy, the hope is to move aggregate demand to the full employment output, or the natural rate of unemployment. During times where output exceeds the full-employment output, the government can increase taxes or decrease spending. In recessionary times, the government can lower taxes or increase spending. Automatic stabilizers, like shock absorbers in a car, can be useful if they reduce the impact of the worst bumps, even if they do not eliminate the bumps altogether. This offset may not seem enormous, but it is still useful. Comparative Advantage and International TradeFiscal policy is the use of government spending or taxes to stabilize the economy. Historically, automatic stabilizers on the tax and spending side offset about 10 of any initial movement in the level of output.By purchasing and using the books, you will gain a more solid foundation in Macroeconomics. contractionary discretionary fiscal policy, or an automatic stabilizer. The important thing to remember is that no one needs to make a decision for these automatic changes to take place - they are built into an existing system. Aggregate Demand-Aggregate Supply Model and Long-Run Macroeconomic Equilibrium. increase governemnt deficits during a recessionary period and increase hte government's surplus during inflationary period. Your instructor will not collect or grade any of the work that you choose to do in the books. Automatic fiscal policy (aka automatic stabilizers) Policies that work to stabilize the economy through changes in government spending and taxes that happen automatically. programs that require the governemnt to increase spending and decrease revenue during a recessionary period, or decrease spending and increase revenue during inflationary periods. These books are not a requirement of the course.
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