Expansionary Fiscal Policy and the Tax Multiplier

Policymakers possess a handful of tools with which to respond to macroeconomic shocks. In this video we'll introduce fiscal policy, and illustrate and explain how the tools it offers can be used to help close a recessionary gap.

[@aminahahmed4399]

im from malaysia and you really help me with my final exam. thank you so much!!

[@safianoori3825]

Hi, I am from Sydney, Australia, and this video has been so informative in helping my studies. Thank you so much :)

[@gingernorman2561]

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[@kiky.mp4]

Thank you

[@realdvgarg]

Whilst explaining concepts using the AD/AS model, we can use the Keynesian graph to represent SRAS right? That is how it's been represented in your book with Sean Maley.

[@Timurlane1905]

Hi Jason, Love your videos and thanks for all you do! A little confused at the end. Wouldn't the MPS be something smaller than 0.5 (to account for MPM)? and therefore, won't the Tax multiplier always be bigger than the -1 you have it shown as here (and could, in theory, be bigger than the Spending Multiplier)? I guess I'm just confused as to why the MPS was 0.5 in your example.

[@JasonWelker]

In this simple model we always assume that MPC+MPS=1. So if MPC=0.5, then MPS=0.5. In other words, of every additional dollar of disposable income, households will spend half and save half. If you're confused by the -MPC/MPS formula, then simply subtract 1 from the spending multiplier to find the tax multiplier (then make it negative, since a change in taxes in one direction will cause GDP to change in the opposite direction).
Here are some examples: If MPC=0.8, then MPS=0.2. k = 1/0.2 = 5. Tax multiplier (t) =0.8/0.2 = 4.
If MPC=0.6, then MPS=0.4. k = 1/0.4 = 2.5. t = 0.6/0.4 = 1.5
If MPC=0.4, then MPS=0.6. k = 1/0.6 = 1.67. t = 0.4/0.6 = 0.67
In every one of these cases, t = k - 1. Or the tax multiplier is the spending multiplier minus one (not taking into account the negative signs, that is...)

[@Timurlane1905]

Got it, makes much more sense now. I knew I was missing something (MPC+MPS=1). Thanks!

[@gettrick32]

When do you visit Runcorn?

[@jamesolojo787]

Jason you are brilliant l love your videos however it's a little bizzare you keep drawing classical diagrams but u keep using the multiplier effect which is a kensyian theory.. Also u show SRAS on the Keynesian model all this is interesting. However keep up your good work.

[@JasonWelker]

Hi James. This is the hybrid model taught at many American universities and endorsed by the College Board for our Advanced Placement program. It is also commonly used in the IB program. It reflects both the relative inflexibility of prices in the short run (SRAS) and the fact that in the long run prices tend to fully adjust (LRAS).

[@jamesolojo787]

@@JasonWelker Thank you for your explanation cheers.

[@joshuabunn89]

I loveyou

[@ugcneteconomicswithanj.5307]

I want to request you one thing...plz type not write...your writing is some time tough for understanding.... otherwise your teaching style is awesome....thank u