public sector and full employment gdp
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Public Sector and Full Employment GDP. Chapter 10 continued. Government Spending. An increase in gov’t spending boosts aggregate expenditure See the table on page 190 and graph on page 191 Gov’t spending is 20 billion at every level The new equilibrium is 550 - PowerPoint PPT PresentationTRANSCRIPT
Public Sector and Full Public Sector and Full Employment GDPEmployment GDP
Chapter 10 continuedChapter 10 continued
Government SpendingGovernment Spending
An increase in gov’t spending boosts An increase in gov’t spending boosts aggregate expenditureaggregate expenditure
See the table on page 190 and graph on See the table on page 190 and graph on page 191page 191Gov’t spending is 20 billion at every levelGov’t spending is 20 billion at every levelThe new equilibrium is 550The new equilibrium is 550
GDP = C (510) + Ig (20) + Xn (0) + G (20)GDP = C (510) + Ig (20) + Xn (0) + G (20) Remember that GDP was 470 when it was only C + IgRemember that GDP was 470 when it was only C + Ig
Tax IncreaseTax Increase
Taxes reduce DI so C and S decreases at Taxes reduce DI so C and S decreases at each leveleach level
Increase in taxes will lower the aggregate Increase in taxes will lower the aggregate expenditureexpenditure
See table 10.4 on page 191 and graph on See table 10.4 on page 191 and graph on page 192page 192Tax is 20 billion at each levelTax is 20 billion at each levelThe new GDP equilibrium is 490The new GDP equilibrium is 490
The sum of leakages (savings, imports The sum of leakages (savings, imports and taxes) = sum of injections and taxes) = sum of injections (investment, exports and G purchases) at (investment, exports and G purchases) at the equilibrium GDPthe equilibrium GDP
G vs tax cutsG vs tax cuts
An = increase in G spending and taxes An = increase in G spending and taxes increases the equilibrium GDPincreases the equilibrium GDP
An increase in G is direct and adds $20 An increase in G is direct and adds $20 billion (example) to aggregate billion (example) to aggregate expendituresexpenditures
A decrease in T has indirect effect on A decrease in T has indirect effect on aggregate expenditures because T cuts aggregate expenditures because T cuts can be C (mpc) or S (mps). S is a can be C (mpc) or S (mps). S is a leakage.leakage.
BONUS Due TODAY OR BONUS Due TODAY OR BEFORE THE TESTBEFORE THE TEST
Page 201Page 201Number 4Number 4Number 5Number 5Number 7 (use figures 10-5 and Number 7 (use figures 10-5 and
10-6 for help)10-6 for help)
Be sure to answer all parts of the questions.Be sure to answer all parts of the questions.