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ECON 1P92 (65)

chapter 22

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Marilyn Cottrell

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February 1 2012 Chapter 22 Adding Government and Trade to the Simple Macro ModelIntroducing GovernmentGovernment is an important variable in the economyFiscal PolicyGovernment expenditures or purchasesTaxationGovernment SpendingG is a part of desired AE AECIGXIMTransfer payments ie pensionsNot government purchasesOnly a flow of funds from government to house holdAffects disposable income and household spendingTax Revenues Net Taxes TTotal tax revenue minus total transfer payments Tax rates are autonomous poly variables but revenues vary with GDPTtYWhere tmarginal propensity to tax Note t includes all taxes so when Y rises by 1 tax revenues rise by t x 1The Budget Balance TGG is autonomous o Beyond the system not dependentTax rates are induced o TG revenue minus expenditureIf TGbudget surplusIf TGbudget deficitAs Y increases T rises o Tax revenues rise o Transfers payments fallProvincial and Municipal GovernmentsG includes all levels of government in desired AE in public savingIn Canadacombined purchases of provincial and municipal governments is larger than federal government The Net Export Function Exports XAutonomous wrt Canadian National income o Dependent more on foreign income
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