Chapter 7 Macroeconomic Policies 且经济学院1
1 Chapter 7 Macroeconomic Policies 0 10 20 30 40 90 91 92 93 94 95 96 97 98 99 00
Topics to be Discussed o7.1 Fiscal policies and effects o7.2 Monetary policies and effects ⊙73 Policy mix o,4 Economic fluctuation and eliminating the fluctuations with economic policies o7.5 Macroeconomic policy practice 友学经济学院
Topics to be Discussed 7.1 Fiscal policies and effects 7.2 Monetary policies and effects 7.3 Policy mix 7.4 Economic fluctuation and eliminating the fluctuations with economic policies 7.5 Macroeconomic policy practice
7.1 Fiscal Policy and Effects o Concept of fiscal policy Fiscal policy is the macroeconomic policy that the government implements by adjusting the aggregate demand to control unemployment, inflation and to realize economic growth and the balance of international payments 友学经济学院
7.1 Fiscal Policy and Effects Concept of fiscal policy ❖ Fiscal policy is the macroeconomic policy that the government implements by adjusting the aggregate demand to control unemployment, inflation and to realize economic growth and the balance of international payments
7.1 Fiscal Policy and Effects o Instruments ÷ Government purchase Government transfer . Taxation Government bond 友学经济学院
7.1 Fiscal Policy and Effects ⚫ Instruments ❖ Government purchase ❖ Government transfer ❖ Taxation ❖ Government bond
7.1 Fiscal Policy and Effect ⊙ Automatic stabilizer Also named interior stabilizer. It's a kind of mechanism existing in economic system Which can counteract the effects of shocks on output 友学经济学院
Automatic stabilizer ❖ Also named interior stabilizer. It’s a kind of mechanism existing in economic system which can counteract the effects of shocks on output. 7.1 Fiscal Policy and Effect
7.1 Fiscal Policy and Effects ⊙ Automatic stabilizer . In depression Y↓→>TR↑→C↑→AE↑→Y↑ .In flourish *Y↑→T↑→C↓→AE↓→Y个 友学经济学院
7.1 Fiscal Policy and Effects Automatic Stabilizer ❖ In depression ： Y → TR↑→ C ↑ → AE↑ → Y ↑ ❖ In flourish： Y ↑ → T ↑ → C → AE → Y ↑
7.1 Fiscal Policy and Effects o Developing Stages of Western Fiscal Policies 6o1936-1945: anti-depression, simple and inflationary fiscal policy 6o1945-1961: anti-business-cycle and compensative fiscal policy o1961-1979: fiscal policies with full employment budget .o1981- 1991: fiscal policies of supply-side school 友学经济学院
7.1 Fiscal Policy and Effects Developing Stages of Western Fiscal Policies ❖ 1936 ~ 1945: anti-depression, simple and inflationary fiscal policy ❖ 1945 ~ 1961:anti-business-cycle and compensative fiscal policy ❖ 1961 ~ 1979: fiscal policies with full employment budget ❖ 1981 ~ 1991:fiscal policies of supply-side school
7.1 Fiscal Policy and Effects ⊙ Annual Balance budget o Cyclical Balance Budget o Full-employment Balance Budget 友学经济学院
7.1 Fiscal Policy and Effects Annual Balance Budget Cyclical Balance Budget Full-employment Balance Budget
Fiscal policy: IS curve shifts R RI R1 B B R2 R2 IS1 IS IS2 IS2 Y2 Y1 Y Y2 YI Total taxt, Is shifts to the left Tax ratet, Is becomes more steep 友学经济学院
R LM IS1 Y1 Y R1 A IS2 B R2 Y2 R LM IS1 Y1 Y R1 A IS2 B R2 Y2 Total tax↑, IS shifts to the left Tax rate↑, IS becomes more steep Fiscal policy：IS curve shifts
7.1 Fiscal Policy and Effects o Crowding-out Effect Pro-economic fiscal policy will lead to a increase in interest rate and personal investment is crowded out *G↑→AE↑→AE>Y>Y↑ Y↑→>Md↑→>Ma>Ms→>R↑ R↑→ 友学经济学院
Crowding-out Effect ❖ Pro-economic fiscal policy will lead to a increase in interest rate and personal investment is crowded out. G↑ → AE ↑→ AE > Y → Y ↑ Y↑ → Md ↑ → Md > Ms → R ↑ R ↑ → I 7.1 Fiscal Policy and Effects