bkballa

bell99 Wrote:
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> solarpower03 Wrote:
> --------------------------------------------------
> -----
> > Hi all,
> > Reading 23, Govt should increase budget deficit
> to
> > stimulate economy. Can somebody explain why
> > current govt (UK) is trying to reduce deficit.
> > Obviously, I would request you to refrain from
> any
> > political views but try to give a rationale for
> > this.
> > Many thanks
>
>
> I had a big struggle with Reading 23. Later on I
> realised the Macroeconomics from L1 and Balance of
> Payment from L2 are essential to this reading.
> Anyway here is my attempt to your question:
>
> The supply of loanable funds is = PS + (T-G) where
> PS is private savings defined as S + (M-X), T=tax
> revenue and G=govt spending.
>
> An increase in (T-G) translate to a higher amount
> in loanable supply of funds for investments.
> Assuming no change in demand for loanable funds,
> the supply of loanable fund "shifts right" causing
> the real interest rate to decease.
>
>
>
> This in turn encourages less private saving and
> more spending. This in turns increase aggregate
> demand curve which results in an increase GDP.
>
> Not sure whether I make sense....

Uhhh... no you don't.