Causes of inflation D-pull and cost-push Causes of deflation Malign and benign Effects of deflation Generally far worse than infl SR and LR Phillips curve U i trade-off in Sr ↔ Possible LRPhC no trade-off – in LR according to mon/N-C school Link to LRAS (e.g. exchange rate and 4) External balance BoP) Increase in AD the Px → infl…and thus rise…etc Contractionary policies lower infl → and poss ↑M 5) Income distribution (measured by Lorenz curve and Gini) Equity vs equality (horizontal and vertical equity) Lorenz curve and Gini coefficient Absolute and relative poverty Ways to even-out Y distr Services in kind Transfer payments Taxes Progressive, regressive and proportional income taxes effects on HHs of Eval: ΔT, services and/or transfer payments 2.4 Fiscal policy Govt budget revenue and spending – Current (services), capital (roads) and transfer payments (soc benefits) Deficits, surpluses and debt Fiscal policy Main purpose Big four and evening-out the business cycle and Methods: ΔG ΔT AD and govt policies Infl and defl gaps in K and mon/N-C models (better: positive and negative output gaps) K version (trade-off) Mon/N-C version (no LR trade-off) Automatic stabilisers Poss impact of G on LR growth (see interventionist S-side policies)
Causes of inflation D-pull and cost-push Causes of deflation Malign and benign Effects of deflation Generally far worse than infl SR and LR Phillips curve U ↔ i trade-off in Sr Possible LRPhC – no trade-off in LR according to mon/N-C school Link to LRAS 4) External balance (e.g. exchange rate and BoP) Increase in AD → infl…and thus the Px rise…etc Contractionary policies → lower infl and poss ↑M 5) Income distribution (measured by Lorenz curve and Gini) Equity vs equality (horizontal and vertical equity) Lorenz curve and Gini coefficient Absolute and relative poverty Ways to even-out Y distr Services in kind Transfer payments Taxes Progressive, regressive and proportional income taxes Eval: effects on HHs of ΔT, services and/or transfer payments 2.4 Fiscal policy Govt budget – revenue and spending Current (services), capital (roads) and transfer payments (soc benefits) Deficits, surpluses and debt Fiscal policy Main purpose Big four and evening-out the business cycle Methods: ΔG and ΔT AD and govt policies Infl and defl gaps in K and mon/N-C models (better: positive and negative output gaps) K version (trade-off) Mon/N-C version (no LR trade-off) Automatic stabilisers Poss impact of G on LR growth (see interventionist S-side policies)