Econ 102 1st Edition Lecture 13Outline of Last Lecture I. 9.3 Understanding the Aggregate Supply (cont.)II. Chapter 10 Fiscal PolicyOutline of Current LectureI. Fiscal PolicyII. Government Spending- EntitlementsIII. Reminder from Econ 101IV.Government: Short Term and Long-Term GoalsV. TaxationVI.The Role of Fiscal PolicyCurrent LectureI. Fiscal Policya. Diagram i. Green area is non-discretionary spending (contractual obligations)1. bulk of spending2. Social Securitya. people are counting on it for retirementb. forced savingsc. Hidden within Social security is welfare pay-ments for the elderly “buried it”- to protect itThese 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.i. big drain on the social security budget but were too afraid to talk about itii. Blue area is discretionary1. choices behind what to spend this money oniii. Hard to fix “one piece” of spending because almost everything is interlinked 2. complex3. make it hard to adjust the budget problemiv. Burgundy area (second circle) Individual Income tax1. largest, primary source of income2. US income taxes are not high, historically have been higher a. also not that high compared to other countriesII. Government Spending- Entitlementsa. Entitlement programs now outstrip Defense spending as the largest share of US federal Outlaysb. deep philosophical questions- not everyone is going to agree!!III. Reminder from Econ 101:a. Society, everyone else, benefits from you going to schooli. Externalityii. EX: less likely to be impoverished, commit crimes, better educated to vote and impact society positively iii. EX: you could go on to cure the cancer Eudey will have in 20 yearsiv. Therefore there is a role for Government to help pay for education 1. How much/ how good the education is that they pay for is always changing2. Subsidy shifts Supply curve downb. Price of education decreases, and the quantity increases b. Negative Externalityi. everyone benefits from less pollution, raise the tax on gas1. shifts supply curve upward by the amount of the taxIV.Government Short Term and Long Term Goalsa. Stabilization Policy- Based on Keynesian modeli. goal is the stabilize aggregate demand ii. hire the people sitting around doing nothingiii. strengthen the safety net 1. its not that people are holding out for a better job2. the labor market is not workinga. people are simply unable to find workiv. Cut income taxes1. it will increase consumption spending- because they’ll more disposable income2. shifts AD curve back to the rightb. Stabilization Policy- based on Classical modeli. say Keynesian is non-senseii. Say AD never falls for just panicky reasons1. something has really happened2. something is structurally wrongiii. Focus on the production function, supply side- sup-ply creates demand is their view1. real wages fell so thats why the Great Depression oc-curred (classical view)iv. Develop infrastructurev. Cut corporate taxes to stimulate investment, hiringV. Taxationa. largest source of government revenuei. US income tax is progressive1. meaning first $50,000 you earn you pay one tax rate,next $25,000 you are taxed a higher rate2. The richer you are the more you are taxed3. Idea behind this is lower income cannot be taxed thismucha. they are only paying for basic needsb. Half of americans pay no taxesi. because they would not have enough money to maintain a caloric intake and have a safe place to liveii. Over 50% of all income tax collection comes from the top 2% of US wage-earn-ersiii. Hard to say “raise taxes” because there arent that many people to tax 1. lowest end cant afford it, not many people in the middle, higher end is already paying for most of itVI.The Role of Fiscal Policya. Defense spending is very cyclical i. spread all over b. legislatures everywhere benefit from the spread of productionc. Stabilization policy i. reduce the swings in GDP to stay closer on both ends to full employmentii. Inside lags 1. time it takes to formulate a policyiii. Outside lag 1. time it takes for the policy to be implemented, actu-ally work2. Applicationa. have a sense of Medicare and Medicaid going into the examb. wont have to graphi. Tax rate vs Tax collection1. tax collection a. (tax rate X GDP)2. 0 to 100% tax rate on x- axisa. at 0 and 100% 0 tax collec-tion because either earning nothing or taking all of earn-ings therefore they wouldn't work because what is the differenceb. Arch in-betweeni. maximum revenue is the pointc. Supply-side economicsi. classical
View Full Document
Unlocking...