Impact of Fiscal Contraction on Closed Economy Long Run Model - Intermediate Macroeconomics

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We start off with the model of the closed economy (the classical model in the long run) and have a fiscal contraction, an improvement of the government budget balance, (that's either a decrease in government spending or an increase in taxes). We see the effect on investment and the real interest rate in the loanable funds market diagram.
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• The Classical Model - ... - Overview of Classical Aggregate Model in the Long Run
• Change In Investment D... - A Change in Investment Demand
• Impact of Fiscal Contr... - A Fiscal Contraction
• Fiscal Expansion + Cla... - A Fiscal Expansion

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20 сен 2024

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Комментарии : 5

@economicurtis 11 лет назад

(thanks for the time stamp) - a fiscal contraction can be one of two things in this model, either a decrease in gov't spending or an increase in taxes (though, admittedly people usually mean a decrease in G). Next, look at the savings equation (S = ...), and we discover the effect of an increase in Taxes is an increase in savings, due to those two negative signs. I think that's all I meant in that section. You can follow the same steps to discover the effect of a change in G as well.

@economicurtis 11 лет назад

I'm not sure this is the best model to answer that question (perhaps I don't understand the question). I have a feeling the question is: "if the government introduces an INVESTMENT tax credit, while keeping S constant", then this is a shift outward in the I(r) curve.... and I think you can do the rest! Otherwise, I'm not sure you can answer that question well with this model....

@morketh 11 лет назад

In the aggregate-demand/aggregate-supply model, an increase in taxes causes ____ to ____ in the long run. A output; increase B output; decrease C the price level; increase D the price level; decrease