Government purchases and tax multipliers

Explain how the government purchases and tax multipliers work. 12.4 LEARNING OBJECTIVE The Government Purchases and Tax Multipliers ‹#› of 66 Copyright © 2015 Pearson Canada Inc. LO12.4   21 Multiplier effect The series of induced increases in consumption spending that results from an initial increase in autonomous expenditures. Economists refer to the initial increase… Continue reading Government purchases and tax multipliers

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Increase in Government Purchases

The Multiplier Effect of an Increase in Government Purchases Following an initial increase in government purchases, spending and real GDP increase over a number of periods due to the multiplier effect. The new spending and increased real GDP in each period is shown in green, and the level of spending from the previous period is… Continue reading Increase in Government Purchases

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Crowding Out in the Long Run

Crowding Out in the Long Run ‹#› of 66 Copyright © 2015 Pearson Canada Inc. 35 LO12.5   Is Losing Your Job Good for Your Health?   Making the Connection Christopher Ruhm (professor of public policy and economics at the Frank Batten School of Leadership and Public Policy in Virginia) has found substantial evidence thaat… Continue reading Crowding Out in the Long Run

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The Effect of Economic Fluctuations

The Effect of Economic Fluctuations on the Budget Deficit Solved Problem 12.2   The Canadian federal government’s budget deficit was $35.3 billion in 1991 and $34.4 billion in 1992. A student comments, “The government must have acted between 1991 and 1992 to raise taxes or cut spending, or possibly both.” Do you agree? Briefly explain.… Continue reading The Effect of Economic Fluctuations

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