Fiscal Policy #1
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5 Terms
1
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Activist Compensatory Fiscal Policy
changing G + T to achieve macro policy goals
use multiplier to manage the economy
G multiplier = 1/mps
2
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Example #1
Y = 1,000; mpc = 0.8; unemployment “too high”
want Y to be 1,200
since multiplier = 5 (1/0.2)
⬆ by 20 to get Y = 1,200
3
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Example #2
Y = 2,000; mpc = 0.9; inflation “too high”
want Y to be 1,500
since multiplier = 10 (1/0.1)
⬇ G by 50 to get Y = 1,500
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Simple Keynesian Model — (C + I + G)
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Aggregate S + D
Note 
Flashcards (133)