PRINCIPLES OF MACROECONOMICS PART III The Core of Macroeconomic Theory TENTH EDITION CASE FAIR OSTER © 2012 Pearson Education, Inc Publishing as Prentice Hall Prepared by: Fernando Quijano & Shelly ofTefft 66 PART III The Core of Macroeconomic Theory © 2012 Pearson Education, Inc Publishing as Prentice Hall of 66 The Government and Fiscal Policy CHAPTER OUTLINE Government in the Economy Government Purchases (G), Net Taxes (T), and Disposable Income (Yd) The Determination of Equilibrium Output (Income) Fiscal Policy at Work: Multiplier Effects The Government Spending Multiplier The Tax Multiplier The Balanced-Budget Multiplier PART III The Core of Macroeconomic Theory The Federal Budget © 2012 Pearson Education, Inc Publishing as Prentice Hall The Budget in 2009 Fiscal Policy Since 1993: The Clinton, Bush, and Obama Administrations The Federal Government Debt The Economy’s Influence on the Government Budget Automatic Stabilizers and Destabilizers Full-Employment Budget Looking Ahead Appendix A: Deriving the Fiscal Policy Multipliers Appendix B: The Case in Which Tax Revenues Depend on Income of 66 PART III The Core of Macroeconomic Theory fiscal policy The government’s spending and taxing policies monetary policy The behavior of the Federal Reserve concerning the nation’s money supply © 2012 Pearson Education, Inc Publishing as Prentice Hall of 66 PART III The Core of Macroeconomic Theory The behavior of the Federal Reserve concerning the nation’s money supply is called: a Discretionary fiscal policy b Automatic fiscal policy c Budgetary policy d Monetary policy © 2012 Pearson Education, Inc Publishing as Prentice Hall of 66 PART III The Core of Macroeconomic Theory The behavior of the Federal Reserve concerning the nation’s money supply is called: a Discretionary fiscal policy b Automatic fiscal policy c Budgetary policy d Monetary policy © 2012 Pearson Education, Inc Publishing as Prentice Hall of 66 Government in the Economy discretionary fiscal policy Changes in taxes or spending that are the result of deliberate changes in government policy Government Purchases (G), Net Taxes (T), and Disposable Income (Yd) PART III The Core of Macroeconomic Theory net taxes (T) Taxes paid by firms and households to the government minus transfer payments made to households by the government disposable, or after-tax, income (Yd) Total income minus net taxes: Y − T disposable income ≡ total income − net taxes © 2012 Pearson Education, Inc Publishing as Prentice Hall Yd ≡ Y − T of 66 PART III The Core of Macroeconomic Theory Over which of the following categories does the government have more control? a Tax revenue b Government expenditures c Tax rates d The size of corporate profits © 2012 Pearson Education, Inc Publishing as Prentice Hall of 66 PART III The Core of Macroeconomic Theory Over which of the following categories does the government have more control? a Tax revenue b Government expenditures c Tax rates d The size of corporate profits © 2012 Pearson Education, Inc Publishing as Prentice Hall of 66 Government in the Economy Government Purchases (G), Net Taxes (T), and Disposable Income (Yd) PART III The Core of Macroeconomic Theory  FIGURE 9.1 Adding Net Taxes (T) and Government Purchases (G) to the Circular Flow of Income © 2012 Pearson Education, Inc Publishing as Prentice Hall 10 of 66 ... function to incorporate disposable income instead of before-tax income, instead of C = a + bY, we write PART III The Core of Macroeconomic Theory C = a + bYd or C = a + b(Y − T) Our consumption function... instead of before-tax income © 2012 Pearson Education, Inc Publishing as Prentice Hall 15 of 66 PART III The Core of Macroeconomic Theory When government enters the circular flow of income, which of. .. Tax rates d The size of corporate profits © 2012 Pearson Education, Inc Publishing as Prentice Hall of 66 PART III The Core of Macroeconomic Theory Over which of the following categories does the