lectures in macroeconomics- charles w. upton a tax cut
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![Page 1: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/1.jpg)
Lectures in Macroeconomics- Charles W. Upton
A Tax Cut
P
r
Y
M
Po
ro
Pick any point on the Y curve.
DY=SY
![Page 2: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/2.jpg)
A Tax Cut
The Y and M Curves
P
r
Y
M
Po
ro
![Page 3: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/3.jpg)
A Tax Cut
The Y Curve
P
r
Y
M
Po
ro
Pick any point on the Y curve.
DY=SY
![Page 4: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/4.jpg)
A Tax Cut
The Y Curve
P
r
Y
M
Po
ro
Does the event (e.g. people become more confident) about the future mean DY>SY or
DY<SY?
DY=SY
![Page 5: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/5.jpg)
A Tax Cut
The Y Curve
P
r
Y
M
Po
ro
Suppose DY>SY . To get back on the Y curve, the Auctioneer would have to raise r or P. Thus Y curve shifts up and to the right.
DY=SY
![Page 6: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/6.jpg)
A Tax Cut
The M Curve
P
r
Y
M
Po
ro
Pick any point on the M curve.
DM=SM
![Page 7: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/7.jpg)
A Tax Cut
The M Curve
P
r
Y
M
Po
ro
Does the event (e.g. people become more confident) about the future mean DM>SM or
DM<SM?
DM=SM
![Page 8: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/8.jpg)
A Tax Cut
The M Curve
P
r
Y
M
Po
ro
DM=SM
Suppose DM>SM . To get back on the M curve, the Auctioneer would have to raise r or lower P. Thus M curve shifts down and to the right.
![Page 9: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/9.jpg)
A Tax Cut
Some Problems
• The government gives everyone a $300 tax rebate this year, adding to the national debt.
![Page 10: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/10.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the Y curve.
P
r
Y
M
Po
ro
![Page 11: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/11.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the Y curve.
• DY>SY
– Wealth up by a fraction of the tax cut; consumption up as well
P
r
Y
M
Po
ro
DY>SY
![Page 12: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/12.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the Y curve.
• DY>SY
– Wealth up by a fraction of the tax cut; consumption up as well
P
r
Y
M
Po
ro
DY>SY
Or is it? If people have a bequest motive, then no impact. We come back to that case.
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A Tax Cut
The Tax Cut
• Pick a point on the Y curve.
• DY>SY
• The Auctioneer must lower DY
P
r
Y
M
Po
ro
DY>SY
![Page 14: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/14.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the Y curve.
• DY>SY
• The Auctioneer must lower DY
P
r
Y
M
Po
ro
DY>SYMemo to the auctioneer:
To cut DY, raise r
To raise DY lower r
![Page 15: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/15.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the Y curve.
• DY>SY
• The Auctioneer must lower DY
P
r
Y
M
Po
ro
DY>SY
![Page 16: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/16.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the Y curve.
• DY>SY
• The Auctioneer must lower DY
• The Y curve shifts up and to the right
P
r
Y
M
Po
ro
DY>SY
![Page 17: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/17.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the M curve.
P
r
Y
M
Po
ro
![Page 18: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/18.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the M curve.
• DM>SM
P
r
Y
M
Po
ro
DM>SM
![Page 19: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/19.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the M curve.
• DM>SM
– Wealth Up
– Consumption Up
– Money Demand Up
P
r
Y
M
Po
ro
DM>SM
![Page 20: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/20.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the M curve.
• DM>SM
– Wealth Up
– Consumption Up
– Money Demand Up
P
r
Y
M
Po
ro
DM>SMWell, maybe. Remember the issue of the bequest motive.
![Page 21: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/21.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the M curve.
• DM>SM
• The Auctioneer must lower DM
P
r
Y
M
Po
ro
DM>SM
![Page 22: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/22.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the M curve.
• DM>SM
• The Auctioneer must lower DM
P
r
Y
M
Po
ro
DM>SMMemo to the auctioneer:
To cut DM, raise r
To raise DM lower r
![Page 23: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/23.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the M curve.
• DM>SM
• The Auctioneer must lower DM
P
r
Y
M
Po
ro
DM>SM
![Page 24: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/24.jpg)
A Tax Cut
The Tax Cut
• Pick a point on the M curve.
• DM>SM
• The Auctioneer must lower DM
• The M curve shifts down and to the right.
P
r
Y
M
Po
ro
DM>SM
![Page 25: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/25.jpg)
A Tax Cut
The Tax Cut
• The Y curve shifts up and to the right.
• The M curve shifts down and to the right.
P
r
Y
M
Po
ro
![Page 26: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/26.jpg)
A Tax Cut
The Tax Cut
• The Y curve shifts up and to the right.
• The M curve shifts down and to the right.
• Price level uncertain• Interest rate up.
P
r
Y
M
Po
ro
![Page 27: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/27.jpg)
A Tax Cut
The Tax Cut II
• Pick a point on the Y curve.
P
r
Y
M
Po
ro
Tax Cut II assumes a
bequest motive
![Page 28: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/28.jpg)
A Tax Cut
The Tax Cut II
• Pick a point on the Y curve.
• DY= SY
– No change in Z
P
r
Y
M
Po
ro
DY+SY
![Page 29: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/29.jpg)
A Tax Cut
The Tax Cut II
• Pick a point on the Y curve.
• DY=SY
• The Y curve is unchanged!
P
r
Y
M
Po
ro
DY=SY
![Page 30: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/30.jpg)
A Tax Cut
The Tax Cut II
• Pick a point on the M curve.
P
r
Y
M
Po
ro
![Page 31: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/31.jpg)
A Tax Cut
The Tax Cut II
• Pick a point on the M curve.
• DM = SM
– No change in Z
P
r
Y
M
Po
ro
DM= SM
![Page 32: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/32.jpg)
A Tax Cut
The Tax Cut II
• Pick a point on the M curve.
• DM = SM
• The M curve is unaffected!
P
r
Y
M
Po
ro
DM= SM
![Page 33: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/33.jpg)
A Tax Cut
The Tax Cut II
• The Y curve doesn’t change.
• The M curve doesn’t change
P
r
Y
M
Po
ro
![Page 34: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/34.jpg)
A Tax Cut
The Tax Cut II
• The Y curve doesn’t change.
• The M curve doesn’t change
• P and r are unaffected.• The tax cut is a non-
event.
P
r
Y
M
Po
ro
![Page 35: Lectures in Macroeconomics- Charles W. Upton A Tax Cut](https://reader035.vdocument.in/reader035/viewer/2022062421/56649d625503460f94a44195/html5/thumbnails/35.jpg)
A Tax Cut
End
©2003 Charles W. Upton. All rights reserved