ECON102 Lecture Notes - Lecture 11: Loanable Funds, Tax Cut, Output Gap

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Maryann Vaughan

Document Summary

Fiscal policy the use of the federal budget to achieve macroeconomic objectives such as full employment, sustained long-term economic growth, and price stability. Largest source of revenue: paid by individuals on their income, corporate income taxes. Smallest source of revenue: taxes paid by companies on their profits. Includes the harmonized sales tax (hst) and taxes on the sale of gasoline, alcoholic drinks, a few other items. Income from government enterprises and investments: outlays (government spending, transfer payments. Increases borrowing, larger debt, larger interest payments, larger deficit and larger debt: a persistent budget surplus creates a virtuous cycle of falling interest payments, larger surpluses, and declining debt, debt and capital. Some government debt has been incurred to finance public consumption expenditure. Income tax weakens the incentive to work and drives a wedge between take-home wage for workers and the cost of labour for firms: decreases supply of labour, people will choose not to work or to work less hours.