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					Fiscal Policy, Aggregate Demand and Production or GDP
        Macro Problem: Weak Economy (Unemployment/Low GDP)
        Policy Strategy: Fiscal Stimulus
        Macro Problem: Overheated Economy (Inflation)
        Policy Strategy: Fiscal Restrain


Macro Problem: Weak Economy
Policy Strategy: Fiscal Stimulus
  Fiscal Options                        Amount

  Increase Gov’t Purchases                DFS            AD shortfall
                                                         multiplier
  Cut Taxes                               DFS
                                          MPC
  Increase Transfer                       DFS
  Payments                                MPC

   DFS= Desired Fiscal Stimulus

Macro Problem: Overheated Economy (Inflation)
Policy Strategy: Fiscal Restraint

  Fiscal Options                        Amount

  Reduce Gov’t Purchases                  DFR            excess AD
                                                         multiplier
  increase Taxes                          DFR
                                          MPC
  Reduce Transfer                         DFR
  Payments                                MPC
    Fiscal Policy and Business Cycle
                                                   Fiscal
Output/ real GDP                 Prosperity       Restraint




                                                                            Fiscal
                                                       Depression          Stimulus

                                Depression
                                                                 Fiscal
               Recession                    Recession           Stimulus


                                         Year



Exercises:
1. How much of the following will change to create fiscal stimulus:
       a. Government Expenditure
       b. Tax?
Note: Make a one sentence conclusion for each answer.
Year           GDP target              Expected Fall GDP Gap
               In millions                               In millions

2009          1,654,753                 1.8%             29785.56


MPC of the Philippines is=0.835source:ww.gsid.nagoya-u.ac.jp


2. The government wants to decrease aggregate demand to P300B to lessen inflation. If
the MPC is 0.90, how much government purchases or taxes should be restraint to solve
the inflation? (show your solutions and explain your answer)

				
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posted:8/26/2012
language:English
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