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Week 4: Fiscal Policy (Taxes, transfers and aggregate spending (Transfer…

- - - - Supply- siders: people who support the need for tax cuts to encourage people to work harder, save more and innovate => increase potential output, with not significant effect on planned spending
      - In making fiscal policy, government should take into account not only the need to stabilize PAE but also the possible effect on the economy's productive capacity
- - - - Borrow money
      - Simply print out the money
      - Raise taxes
    - - Reduce crowding out: occurs where government borrowing increases interest rates and therefore decreases investment
      - Inter-generational equity: the current generation should not impose an unfair burden on future generations
    - - Important infrastructure projects are financed through public debt
  - - - Lorenz curve: graphical representation of income inequality
      - A Gini coefficient: a summary measure of income inequality