ECO102H1 Lecture Notes - Lecture 5: Government Budget Balance, Disposable And Discretionary Income, Autarky
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ECO102H1 Full Course Notes
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0 = taxes (t) = transfer payments (tr) = government purchases (g) No trade: ex = im = 0. Tr = 0 since it"s a private economy. Disposable income: income households are free to use. In a private economy, tr and t = 0. Disposable income = consumption (c) + private savings (sp) Therefore, gdp in case is gdp = c + sp. Private savings: gdp - c = sp. Gdp = c + i + g. Gdp - c - g = i. Disposable income = gdp + tr - t. However, sg = 0 in a close economy. Gdp = c + i + g + nx. Case 1: private closed economy (simplest case) Disposable income can be used on consumption and private savings. Private savings: sp = gdp + tr - t - c. Government savings = t - (tr - g) Budget surplus if t > tr + g.