ECO101H1 Lecture Notes - Lecture 7: Foreign National, Government Budget Balance, Tax Rate
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ECO101H1 Full Course Notes
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Y = c + i + g + x m (actual) Consumption savings = c = c bar + mpcyd. The multiplier: final change in yeq from a change in autonomous expenditure (a) is determined by the multiplier. Ae = c + i + g (g): total desired government spending. To fund spending, gov need to collect taxes. G directly affects ae, t indirectly affects ae through yd. G (spending) > net tax revenue: budget deficit. G = net tax revenue = t = ty. For every dollar of (national income) y, the government collects ty (t = marginal tax rate) Solve for the ae function: get the consumption function in terms of y (not yd) C = c bar + mpc(1-t)y: add up c + i + g to get ae function. Ae = cb + ib + gb + mpc(1-t)y. This means that for every 1$ increase in autonomous spending, national income will increase by . 57.