Ebook Macroeconomics - Private and public choice (13th edition): Part 2
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Ebook Macroeconomics - Private and public choice (13th edition): Part 2
Ebook Macroeconomics - Private and public choice (13th edition): Part 2
Fiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2 fiscal policy an effective stabilization tool? Is there broad agreement among Keynesians and non-Keynesians on this issue?• Will increases in government spending financed by borrowing help promote recovery from a recession?How do the crowding-out and new classical models of fiscal policy modify the Ebook Macroeconomics - Private and public choice (13th edition): Part 2 KeyiThe main difference between Keynes and modern economics is the focus on incentives. Keynes studied the relation between macroeconomic aggregates,Ebook Macroeconomics - Private and public choice (13th edition): Part 2
without any consideration for the underlying incentives that lead to the formation of these aggregates. By contrast, modern economists base all theirFiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2iscal policy provides a potential tool through which aggregate demand can be controlled and maintained at a level consistent with full employment and price stability. During the 1970s, however, the economic instability, along with high rales of both unemployment and inflation, illustrated some of lh Ebook Macroeconomics - Private and public choice (13th edition): Part 2e difficulties involved in the effective use of fiscal policy as a stabilization tool. Moreover, in recent decades, economists have become more awareEbook Macroeconomics - Private and public choice (13th edition): Part 2
of secondary effects that reduce the potency of fiscal policy. More attention has also been paid lo the incentive effects accompanying fiscal changes,Fiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2i Zingales highlights these points. I his chapter will focus on these topics and investigate how they affect the operation of fiscal policy and its potential to improve the performance of a marker economy. I he chapter will also address the current debate among economists about the effectiveness of Ebook Macroeconomics - Private and public choice (13th edition): Part 2“fiscal stimulus” as a tool wilh which lo promote recovery from a severe recession like lhaL of 2008-2009. ■Crowding-out effectA reduction in privateEbook Macroeconomics - Private and public choice (13th edition): Part 2
spending as a result of higher interest rates generated by budget deficits that are financed by borrowing in the private loanable funds market.Fiscal Fiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2demand, output, and employment. Other economists disagree. When the government runs a budget deficit, the funds will have to come from somewhere. If we rule out money creation (monetary policy), the government will have to finance its deficit by bor rowing from either domestic or foreign lenders. Bu Ebook Macroeconomics - Private and public choice (13th edition): Part 2t the additional government borrowing will increase the demand for loanable funds, which will push real interest rales upward. In turn, the higher reaEbook Macroeconomics - Private and public choice (13th edition): Part 2
l interest rates will reduce private investment and consumption, thereby dampening the stimulus effects of expansionary fiscal policy. Economists refeFiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2increases its spending or reduces taxes and. as a result, runs a budget deficit of$100 billion. As EXHIBIT 1 shows, the government's additional borrowing will increase demand in the loanable funds market and place upward pressure on real interest rates. How will the higher interest rates influence p Ebook Macroeconomics - Private and public choice (13th edition): Part 2rivate spending? Consumers will reduce their purchases of interest rate sensitive goods, such as automobiles and con sumer durables. A higher interestEbook Macroeconomics - Private and public choice (13th edition): Part 2
rale will also increase the opportunity cost of investment projects. Businesses will postpone spending on plant expansions, heavy equipment, and capiFiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2 retard private spending. If it were not for the reduction in private spending, aggregate demand would increase to AD, (the doited curve of part a), but given the reduction in private spending, aggregate demand remains unchanged at ADt.The crowding-out effect implies that the demand stimulus effects Ebook Macroeconomics - Private and public choice (13th edition): Part 2 of budget deficits will be weak because borrowing to finance the deficits will increase interest rates and thereby crowd out private spending on inveEbook Macroeconomics - Private and public choice (13th edition): Part 2
stment and consumption. This reduction in private spending will partially, if not entirely, offset the additional spending financed by256Find more at Fiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2SpendingThe crowding out effect indicates that budpt deficits will lead to higher interest rates, which will reduce private investment and consumption, offsetting the demand stimulus of expansionary fiscal policy. If the government borrows an additional Í100 billion to finance a budgpt deficit, the Ebook Macroeconomics - Private and public choice (13th edition): Part 2demand for loanable funds will increase by this amount (shift from D, to Dz in frame b), leading to higher real interest rates If it were not for theEbook Macroeconomics - Private and public choice (13th edition): Part 2
higher real interest rates, aggregate demand would increase to AD, (dotted curve of part a). However, at the higher interest rates. private investmentFiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2licy will haw little or no impact on aggrepte demand.the deficit. Ilms, the net impact of expansionary fiscal policy on aggregate demand, out pul. and employment will be small.Furthermore, as private investment is crowded out by the higher interest rales, the output of capital goods will decline. As Ebook Macroeconomics - Private and public choice (13th edition): Part 2 a result, the future stock of capital (for example, heavy equipment, other machines, and buildings) available to future workers will be smaller thanEbook Macroeconomics - Private and public choice (13th edition): Part 2
it would have been otherwise. In other words, deficits will have an adverse effect on capital formation and lend to retard tlx; growth of productivityFiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2ession, particularly a serious one. During the severe recession of 2008-2009. short-term interest rales fell to nearly zero even though the federal government was running huge deficits? Under circumstances like these, the immediate crowding out effect is likely to be small, and therefore the budget Ebook Macroeconomics - Private and public choice (13th edition): Part 2deficits will stimulate output and employment just as the Keynesian analysis implies. The proponents of crowding out counter thill while this may be tEbook Macroeconomics - Private and public choice (13th edition): Part 2
rue during the recession, the deficits will mean more borrowing and less private spending as the economy begins to recover. As a result, the recovery Fiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2 symmetrical. Restrictive fiscal policy will "crowd in" private spending. If the government collects greater tax revenues:E*p>nwnwry m-ncury pMicy at»o cimlrĩhulcd k> It*.' low .hxl-tcnn ink«v«l rate* of 2TW1-2Ebook Macroeconomics - Private and public choice (13th edition): Part 2
aller deficit). As a result, the government's demand lor loanable funds will decrease, placing downward pressure on the real interest rate. The lower Fiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2fset by an expansion in private spending. . Is the result of this crowding in. restrictive fiscal policy will be largely ineffective as a weapon against inflation.Do Global Financial Markets Minimize the Crowding-Out Effect?Today, financial capital can rapidly move in and out of countries. Suppose t Ebook Macroeconomics - Private and public choice (13th edition): Part 2he budget deficit of the United Stales increases and additional borrowing by the U.S. Treasury pushes real interest rates upward, just as the crowdingEbook Macroeconomics - Private and public choice (13th edition): Part 2
-out theory implies. Think about how investors will respond to this situation. The higher real interest yields on bonds and other financial assets wilFiscal Policy: Incentives, and Secondary EffectsIs saving good or bad for the economy;Are there supply-side effects of fiscal policy:Is discretionary Ebook Macroeconomics - Private and public choice (13th edition): Part 2al interest rates in the United Stales.'At first glance, the crowding out effect would appear to lie weakened because the inflow of funds from abroad will moderate the upward pressure on domestic interest rates. Closer inspection, though, reveals that this will not be the case. Foreigners cannot buy Ebook Macroeconomics - Private and public choice (13th edition): Part 2 more U.S. bonds and financial assets without "buying” more dollars in the foreign exchange market. I11US. additional hond purchases will increase theEbook Macroeconomics - Private and public choice (13th edition): Part 2
demand for U.S. dollars (and the supply of foreign currencies) in the foreign exchange market—the market dial coordinates exchanges of the various naGọi ngay
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