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UT Knoxville ECON 201 - Surplus, Deficit, and Debt

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ECON 201 1st Edition Lecture 38Outline of Last Lecture I. Multiplier Effect and Marginal Propensity to Consume (Recall)II. The Multiplier FormulaIII. The Crowding Out Effecta. Definition of crowding out effectIV. Fiscal Policy and Aggregate SupplyOutline of Current Lecture I. Fiscal Policy and Aggregate Supply, cont. a. Definition of automatic stabilizersII. Budget Surplus and Deficita. Definition of budget surplusb. Definition of budget deficitIII. The U.S. Governments Debta. Definition of debt to GDP ratioIV. Where We Are to Where We Can Be: ConclusionCurrent LectureI. Fiscal Policy and Aggregate Supply, cont.Many economists believe the short-run effects of fiscal policy mainly work through aggregate demand, but fiscal policy might also affect aggregate supply through ways like tax cuts and working more. People who believe this effect is large are called “supply-siders”. Economists debate about how active a role the government should take to stabilize the economy. The case for active policy to stabilize lies with Keynes. The case against the active stabilization policy is called the “lag argument”. There are three components to this argument: recognition lag, legislative lag, and implementation lag. They primary concern against active stabilization is that it takes too long to go about fixing a policy that by the time they try to fix it, the problem has passed. Automatic stabilizers are changes in fiscal policy that simulate aggregate demand whenan economy goes into recession, without policymakers having to take deliberate action. Examples of automatic stabilizers include taxes and government spending. II. Budget Surplus and DeficitBudget surplus is an excess of tax revenue over government spending and is calculated by subtracting government spending from taxes (T-G). Budget deficit is a shortfall of tax revenue 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.from government spending and is calculated by subtracting taxes from government spending (G-T). It is financed by selling government securities. III. The U.S. Government’s DebtThe U.S. Government’s debt is accumulated deficits. The debt to GDP ratio is a measure of the government’s indebtedness relative to its ability to raise tax revenue. IV. Where We Are to Where We Can Be: ConclusionSome final points Dr. Bueckman wanted us to take away from class were that the U.S. economy is big. We can’t change the direction of anything this big quickly; we must think in small steps, slow steps, and make sound decisions. We must vote for better decision makers and be part of the


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UT Knoxville ECON 201 - Surplus, Deficit, and Debt

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