We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

Government Spending and Price Levels - Term Paper Example

Comments (0)
Summary
Government Spending and Price Levels Contents ISLM Model 3 Keynesian model of cross planned expenditure 5 Phillips Curve 7 Imperfect Information 8 Monetary effects on output, work, and investment 13 References 15 ISLM Model The total supply of goods in the economy is denoted by Y…
Download full paper
GRAB THE BEST PAPER
Government Spending and Price Levels
Read TextPreview

Extract of sample
Government Spending and Price Levels

Download file to see previous pages... A part of the consumer’s income is taxed. Let the fixed rate of tax be t. Then the savings can be written as S = (1-t)Y-C+ tY-G. Consumption can be written as C=c(1-t)Y, c is the marginal propensity to consume. Therefore, S=(1-c)(1-t)Y-tY-G. Let us concentrate on the monetary side. The assumption here is that the supply of money (M) is determined by the central bank. The consumer’s decision on their holdings is the sole driving force behind the demand for money. The consumers allocate a part of their wealth as currency and the remaining part in the form of bonds. It is expected that an increase in the interest rate will induce consumers to keep a smaller proportion of their income as currency which, in turn, reduces the demand for money. An expansionary monetary policy will reduce the interest rate and increase output in the short run while an expansionary fiscal policy will do just the opposite (Weins, n.d.). A reduction in marginal propensity to save will increase the rate of interest along with the output. A shock of drop in consumer’s confidence will have its effects on savings, investment, money supply and demand assuming rate of interest and output remains constant. (Massachusetts Institute of Technology, 2009, p. 1) The original point A is still equilibrium of the money market. Therefore, the LM curve must include point A. But investment is same as before but savings has increased. So the point A which originally was in the IS curve is now a point where S>I. If there is movement to the right from A, then interest rates and investments are same and savings increases due increase in output. This will make the savings even bigger and so the actual movement should have been to the left of A. (Massachusetts Institute of Technology, 2009, p. 1) An increase in money supply will have no effect on savings and investment or demand for money. Therefore, savings and investment will remain the same and so IS curve must include point A. Keynesian model of cross planned expenditure The cross planned expenditure is given by Ep. Ep= C+I+G. Investment Demand Schedule (Cooke, 2010, p. 10) Ip is planned investment. Ep=E(Y,r,G,T)=C(Y-T)+Ip(r)+G Keynesian Cross (Cooke, 2010, p. 12) Government Spending (Cooke, 2010, p. 13) Phillips Curve The relationship between inflation and unemployment is represented through Phillip’s curve. There is a relation between the prices charged by the company and the wages. (Hoover, n.d.) Suppose the government plans for an expansionary fiscal and monetary policy in order to bring the unemployment below the natural rate. This results in increase in demand conditions. The firms are encouraged to raise the prices. The rate of increase in prices is faster than that anticipated by the workers. Workers in this situation are likely to suffer from money illusion. They witness a rise in the wage rate and thereby supplies more labor. This results in fall unemployment rate (Liaudes, 2005, p. 31). Imperfect Information The real economy is significantly affected by monetary policy in the short run. The non-neutral effects of monetary policy rise because of temporary nominal price rigidities. The short term interest rate is taken as the instrument of monetary policy. The Central Bank should adjust the nominal rate so that it cannot offset the movement in expected inflation. The nature of the disturbances has a role to play in this part. The Central Bank may not ...Download file to see next pagesRead More
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
US government : campaign spending
Politicians seeking to be voted for need to travel across different states of the country in order to attract more voters to their candidates and they need to spend much in order to meet their target.
2 Pages(500 words)Dissertation
Unemployment and its Effect on Consumer Spending
Many countries have tried to mitigate its effect brought upon by the global recession whilst many other countries are still facing the curse with increasing unemployment rate. The unemployment rate is considered to be a measure through which a country’s unemployment is measured in terms of percentage.
6 Pages(1500 words)Term Paper
Effects on economic efficiency of government price controls and taxes
The demand curve is of great use to measure complete consumer surplus in a market. It shows the eagerness of a consumer to buy a good at various prices (Gillingham & IMF, 2008). Consumers are eager to buy a commodity up to the level where the marginal gain of consuming the commodity is equivalent to its cost.
5 Pages(1250 words)Term Paper
Social Security and Other Government Benefits
At this juncture austere fiscal policy is highly debated and is projected to further impair the development activities in the country. Social security faces the largest question. The harsh realization of these activities as realized by the common domestic citizen is that, Social Security and Medicare might not be available any further for the generation that is at their twenties in the current decade.
10 Pages(2500 words)Term Paper
Fiscal policy and regulation
Lastly, the essay makes use of extensive scholars’ work gathered from various books as well as institutional books dealing with fiscal policy. Fiscal policy is the use of government funds
9 Pages(2250 words)Term Paper
Does a government imposed price control provide an efficient market
A good example is observed when the government implements rent controls and regulation of gasoline prices (Adams, 35-73). On condition that the price ceiling is set below the equilibrium, the
3 Pages(750 words)Term Paper
Increasing levels of childhood obesity, accompanied by increasing levels of incipient Type 1 diabetes, are for many a cause for concern. Is this solely the responsibility of parents, or does the government has a role to play in response If so, what
The point of argument here is whether the control measures are the sole responsibility of parents or the government has a role to play
5 Pages(1250 words)Term Paper
Price Comparisons
Due to alleviation of miscellaneous expenses like rent, electricity bills, online pricing is low and full of discounts compared to a retail department store. Presence of coupons eases shipping charges in online trading hence low price
1 Pages(250 words)Term Paper
Deficit Spending
Deficit spending is also one such process which many country used to adopt to tackle several economic condition. In this paper the main focus is on analyzing the positives and negatives of the deficit spending and how it generally works. Just
3 Pages(750 words)Term Paper
Government Spending
On the other hand, the Treasury Department (1) points out that the collective figure spent on TARP, Bailouts and QE was reduced to $475 billion. However, it
2 Pages(500 words)Assignment
Let us find you another Term Paper on topic Government Spending and Price Levels for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us