ECO100Y5 Lecture Notes - Lecture 22: Government Spending, Unemployment Benefits, Canadian Dollar
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ECO100Y5 Full Course Notes
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Chapter 22: adding government and trade to the simple. Fiscal policy: a government"s plans for taxes and spending. Government purchases of goods and services, g (buying office supplies, purchasing fuel for the canadian forces) add directly to aggregate desired expenditure. Government spending and transfer payments (welfare and employment insurance benefits, subsidies) add indirectly to aggregate expenditure through households" and firms" spending, c. G is autonomous with respect to the level of national income. Taxes reduce households" disposable income, while transfer payments raise it. Net tax revenue, t: total tax revenue received by the government minus total transfer payments made by the government. In this model, assume that net tax revenues vary directly with the level of national income. Net tax rate, t: the increase in net tax revenue generated when national income rises by 1 dollar. Budget balance: the difference between total government revenue and total government expenditure. Budget balance = net tax revenue - government purchases, t - g.
