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Lecture 1

ECON102 Lecture Notes - Lecture 1: Externality

Course Code
J.Scott Beesley

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January 5 2016
Introductory Lecture
Macro Policy Questions
How big should the government be? (% of GDP)
What services should a government o!er?
oHealthcare, education, public goods, defense;
oShould they o!er subsidies? Transfers?
How much should we tax the rich and/or help the poor?
What gets taxed?
oTraditionally – income, labour, capital (in the form of interest), consumption (in the
form of GST), carbon
oIn theory – you tax the bads, not the goods
What, if anything, should be subsidized?
oActivities with “positive externalities”
oConversely, you should tax activities with “negative externalities”
Externalities: side e!ects
How actively should the government take to manage the economy?
oThis is an open question
“Stylized Facts” About the Macro Economy at Present
DEBT, DEBT, DEBT (record levels in the OECD)
oQuantitative Easing (QE): print/create money and spent it
Increased inequality
oHow intensively should we help those at the bottom)
Falling birthrates in all medium/high income places, high birthrates in less developed countries
Carbon is increasing, water is decreasing
Austerity vs. Spending*
(*In relation to the Watson article)
New NDP government in Alberta
NDP/Liberals in Ontario as of late
Trudeau/Liberals now in Ottawa
Pro-Spending/Left Austerity/Right
Spend at current levels or more
Print more money if necessary
“Invest” in critical industries
Raise taxes (especially on rich
people/big companies)
Protect our industries (tari!s,
Cut back somewhat
Don’t print money
Don’t subsidize much
Don’t raise taxes
Civil service/government is too big
Cut pay levels
Sustain spending in the economy
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