ECON 295 Lecture Notes - Lecture 4: Exchange Rate, Ceteris Paribus, Consumption Function
Document Summary
Government purchases of goods and services (g) are part of desired aggregate expenditure autonomous (not consequence of change in gdp, infrastructure) Including all levels of government federal, provincial, territorial and municipal (add them up) Net taxes (t) are total tax revenues net of transfer payments. In our simple model, g is treated autonomous while t is induced. Tax rate is constant (taxes 10% of gdp) Where t is the net tax rate (assumed autonomous and average=marginal) T enters the ae function indirectly via the consumption function: The budget balance is the difference between g and t* When measuring the overall contribution of government to desired aggregate expenditure, all levels of government must be included. Canada"s exports are autonomous with respect to canadian gdp. Canada"s imports rise as canadian gdp rises (imports are effected by changes in our gdp (induced), exports autonomous) Where m is the marginal propensity to import.