EC140 Chapter Notes - Chapter 32: Government Budget Balance, Government Debt, Real Interest Rate
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EC140 Full Course Notes
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Three categories of government expenditure: government purchases of goods and services (g, interest payments on the outstanding stock of debt; referred to as debt- service payments. Denoted as i x d (interest rate times stock of debt: transfers to individual and irms, however transfers are part of net tax revenue (t) G + i x d = t + borrowing (g + i x d) - t = borrowing. This equation means that any excess in government spending beyond net tax revenues must be inanced through borrowing! Budget deicit ~ excess of government expenditures over tax revenues. This is the same as the amount borrowed from the government for a given year! Government debt (d) ~ the outstanding stock of inancial liabilities for the government, equal to the accumulation of past budget deicits. Budget deicit = d = (g + i x d) - t. Budget surplus ~ any excess in government tax revenue over government expenditures.