ECN 301 Lecture Notes - Lecture 15: Business Cycle, Capital Formation, Full Employment

• School: Ryerson University
• Department: Economics
• Course: ECN 301
• Professor: Mary Olynik

Document Summary

Excludes: government business enterprises ie. bank of canada. Government expenditure: the total spending by the government during a period of time include: Direct taxes (largest category of tax receipt) Three ways by which government spending and taxing decisions influence macroeconomic variables. Fiscal policy can affect economic activity by influencing the aggregate demand. In classical or keynesian view, an increase in government purchases reduces desired national saving and raises aggregate demand. In classical view, lump sum taxation does not affect desired national saving and has no influence on aggregate demand. Keynesians generally argue that using fiscal policy to stabilize the economy is potentially desirable. A tax cut reduces desired national saving and raises aggregate demand. Difficult due to use fiscal policy to smooth business cycles due to long lags and lack of flexibly. Provisions in the budget that cause government spending or tax revenues to change automatically. Side effect: budget surpluses drop in recessions.