Show me on a dd aa model the effect of a permanent fiscal...

Name: show me on a dd aa model the effect of a permanent fiscal expansion on aggregate output in the short run when the increase in government spending must be equally matched by an increase in ta 04144
Uploaded: 2022-05-26T08:53:49-08:00
Duration: 5 min 2 s
Channel: Jonathan Tapiwa
Description: show me on a dd aa model the effect of a permanent fiscal expansion on aggregate output in the short run when the increase in government spending must be equally matched by an increase in ta 04144

Show me on a DD-AA model the effect of a permanent fiscal expansion on aggregate output in the short run, when the increase in government spending must be equally matched by an increase in taxes.

Transcript

00:01 Okay, so we're going to be looking here at the dynamics of aggregate and aggregate supply and aggregate demand, given the following information, that we assume that all factors that affect economic growth remain constant.

00:21 Suppose that an economy is initially operating at full employment level.

00:25 So we're just going to draw up a graph that would illustrate.

00:30 Trade and economy operating at full employment and that is normally given by the long run aggregate supply curve.

00:47 So we put it like this.

00:48 So this is full employment which is say qf and obviously this is gdp that we're going to be looking at and we have the price level and if we are going to look at the demand aggregate demand, let's just have that as the original aggregate demand.

01:11 These therefore to give us an original price level, pl.

01:17 We can call it pl.

01:19 Okay, so with that, we then have to, we need to consider that there is a deficit in government budget.

01:29 So that basically means that the government expenditure.

01:32 Is greater than the tax level or the revenue from texas.

01:38 To reduce the deficit, the government plans to increase the taxes, what will be the effect on the increase in the taxes in the short run and in the long run, explain the dynamics of employment, output and prices in the short run, by using aggregate supply and aggregate demand model.

01:55 Okay, so there's different types of taxes, and if it is going to be taxes on income, then you are likely to find a decrease in the aggregate demand because now consumers have less disposables as a result of an increase in taxes.

02:15 So you are likely to see a shift in aggregate demand...

Question

Show me on a DD-AA model the effect of a permanent fiscal expansion on aggregate output in the short run, when the increase in government spending must be equally matched by an increase in taxes.

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