ECN 203 1nd Edition Lecture 30Outline of Last Lecture II. Intro to Fiscal Policy Outline of Current Lecture III. Intervention IV. Crowding out EffectV. Non-Interventionist and Interventionist ViewsCurrent Lecture- Fiscal Policy Intervention o Carefully planned intervention can move the economy to full employment. But can also cause problems. Like inflation. - Crowding-Out Effecto AD = C+I+(G-T)+(X-M) The gov’t spends more – raises the budget deficit Gov’t borrows money – increases Demand line in LTCM Private investment gets crowded out due to high Interest Rates Higher IR = higher international capital flow and dollar depreciates. - Non-interventionist view o Believe stimulative fiscal policy is not necessary because it crowds out investment (stated before). So as (G-T)>0 stimulates, Investment decreases and drags AD. Higher interest rates decrease the value of the dollar. Higher interest rates attract foreign capital strengthening the dollar which makesthe trade balance (X-M) more negative – another AD drag. o Intervention is not necessary These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Interventionist viewo In the long run the economy won’t have enough time to fix itself and people will
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