ECO 1304 Lecture Notes - Lecture 11: Disposable And Discretionary Income, Aggregate Demand, Output Gap
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Disposable income: di = y - t. (cid:1371) taxes (cid:1372) (cid:1373) di (cid:1372) (cid:1373) c. (cid:1373) taxes (cid:1372) (cid:1371) di (cid:1372) (cid:1371) c. The multiplier revisited component of c + i + g + (x-im) component of c + i + g + (x-im) (cid:1371) government purchases of goods & services (cid:1372) (cid:1371) total spending directly through the g. (cid:1371) taxes (cid:1372) (cid:1373) total spending indirectly by lowering disposable income &, thus, reducing the c. Part of tax cuts goes to savings. (cid:1371) income (cid:1372) (cid:1371) income taxes paid (cid:1372) smaller increase in consumption with income tax. If spending increases are financed by tax increases, the economy will expand. If tax cuts are financed by spending cuts, the economy will contract. When incomes rise, a larger amount is taken out in taxes than before, leaving a smaller. Fiscal policies that keep the deficit (g-t) constant do not keep ad constant.