6
Concepts
3
Formulas
1
Decisions
4
Quiz Questions
6 concepts covered in this module.
Government spending and taxation. Expansionary: increase spending / cut taxes. Contractionary: cut spending / raise taxes.
The amplified impact of government spending on GDP. Multiplier = 1 / (1 - MPC × (1-t)). Higher MPC = larger multiplier.
Equal increase in G and T increases output by 1. Spending multiplier > tax multiplier because MPC < 1.
Tax revenues and transfer payments that automatically adjust with the cycle. Reduce the amplitude of fluctuations without legislation.
Structural (cyclically adjusted) deficit measures true fiscal stance. Actual deficit includes cyclical components.
Theory: rational consumers save tax cuts to pay future taxes, neutralizing fiscal stimulus. Largely theoretical.
3 essential formulas for this module.
Where: MPC = marginal propensity to consume, t = tax rate
Where: Smaller in absolute value than spending multiplier
Where: Equal increase in G and T increases Y by exactly the amount of the increase
1 decision frameworks to guide your analysis.
Visual overview of how concepts connect in this module.
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