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Lectures in Macroeconomics- Charles W. Upton Fiscal Policy- Part 4.

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Presentation on theme: "Lectures in Macroeconomics- Charles W. Upton Fiscal Policy- Part 4."— Presentation transcript:

1 Lectures in Macroeconomics- Charles W. Upton Fiscal Policy- Part 4

2 The Foolish Expenditure Y M PoPo roro

3 Fiscal Policy-Part 4 The Foolish Expenditure Y M PoPo roro We have seen what happens when the government spends $X on a foolish (tax- financed) project.

4 Fiscal Policy-Part 4 The Foolish Expenditure Y M PoPo roro We have seen what happens when the government spends $X on a foolish (tax- financed) project. Interest rates probably up, prices up

5 Fiscal Policy-Part 4 The Foolish Expenditure Y M PoPo roro We have seen what happens when the government spends $X on a foolish (tax- financed) project. Interest rates probably up, prices uncertain. Suppose instead the government had financed the project by printing money.

6 Fiscal Policy-Part 4 Spending and Printing Foolishly Y M PoPo roro

7 Fiscal Policy-Part 4 Spending and Printing Foolishly Y M PoPo roro This is inflationary!

8 Fiscal Policy-Part 4 Can It Happen Here? Y M PoPo roro Literally no. The Federal Reserve System is independent of the Treasury

9 Fiscal Policy-Part 4 Does it Happen Abroad Y M PoPo roro Let me count the ways…

10 Fiscal Policy-Part 4 Does it Happen Abroad Y M PoPo roro Germany during the Hyperinflation

11 Fiscal Policy-Part 4 Does it Happen Abroad Y M PoPo roro Germany during the Hyperinflation Russia under Yeltsin

12 Fiscal Policy-Part 4 Does it Happen Abroad Y M PoPo roro Germany during the Hyperinflation Russia under Yeltsin Iraq under Hussein

13 Fiscal Policy-Part 4 Does it Happen Abroad Y M PoPo roro Germany during the Hyperinflation Russia under Yeltsin Iraq under Hussein The United States under George

14 Fiscal Policy-Part 4 Does it Happen Abroad Y M PoPo roro Germany during the Hyperinflation Russia under Yeltsin Iraq under Hussein The United States under General George Washington

15 Fiscal Policy-Part 4 Accommodating Monetary Policy Y M PoPo roro

16 Fiscal Policy-Part 4 Accommodating Monetary Policy Y M PoPo roro The government is going to spend $X. Interest rates rise.

17 Fiscal Policy-Part 4 Accommodating Monetary Policy Y M PoPo roro The government is going to spend $X. Interest rates rise. The Federal Reserve System engages in an open market operation at the same time.

18 Fiscal Policy-Part 4 Accommodating Monetary Policy Y M PoPo roro The government is going to spend $X. Interest rates rise. The Federal Reserve System engages in an open market operation at the same time. It is as if we had used money to pay the bills.

19 Fiscal Policy-Part 4 Accommodating Monetary Policy Y M PoPo roro The government is going to spend $X. Interest rates rise. The Federal Reserve System engages in an open market operation at the same time. It is as if we had used money to pay the bills. That is why we have the Fed independent of the Treasury

20 Fiscal Policy-Part 4 End ©2004 Charles W. Upton. All rights reserved


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