Module Fiscal Policy and the Multiplier KRUGMAN'S MACROECONOMICS for AP* 21 Margaret Ray and David Anderson.

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Presentation transcript:

Module Fiscal Policy and the Multiplier KRUGMAN'S MACROECONOMICS for AP* 21 Margaret Ray and David Anderson

What you will learn in this Module : Why fiscal policy has a multiplier effect How the multiplier effect is influenced by automatic stabilizers

Multiplier Effects of an Increase in Government Purchases of Goods and Services Initial increase in spending Indirect effect of increased spending Remember the multiplier

Multiplier Effects of Changes in Government Transfers and Taxes Taxes and Transfers compared to Government Spending Transfers Tax cuts Taxes Lump-sum taxes

How Taxes Affect the Multiplier The reliance of taxes on real GDP Effect on the multiplier Automatic stabilizers Discretionary Fiscal Policy