taxes and spending to alter
macroeconomic outcomes
shift aggregate demand and thereby
alter macroeconomic outcomes
 payments deficits and excessive
aggregate demand, income transfers
 
spends more than #$%& trillion a year
 " 'ollects nearly #$ trillion a year in
taxes! (ith nearly half that from
individual income taxes
more! borro(in additional funds
demand+
 " Purchasin more or fe(er oods and
services
 
#D
recessionary G-P ap of #".. billion
• From a /eynesian perspective! the
solution is to et someone to spend
more on oods and services
 
aggregate demand
() curve to the right*
 
of fiscal stimulus
demand
depends on the value of the multiplier
 
increases disposable income, which
().
in consumption   = ×
stimulus than a same sie increase in
government purchases
 MPC  =
in spending in consumption = ×
 stimulus injection transfer payments = ×
and fiscal restraint is more appropriate
• Inflationary G-P ap: The amount by
which e&uilibrium -)! exceeds full
employment
intended to reduce $shift% aggregate demand
 
may be offset by the crowding out of
 private expenditure.
sector borrowing $and spending%
caused by increased government