ECO105Y1 Lecture Notes - Lecture 22: Government Spending, The Incentive, Human Capital
Document Summary
Fiscal policy is about the changes governments make regarding their purchases, transfers, and taxes in attempting to achieve the key macroeconomic outcomes of steady growth, full employment, and stable prices. An injection is spending in the circular flow that does not start with consumers. A leakage is spending that leaks out of (leaves) the circular flow. Spending injection has multiplied impact on real gdp. Business investment spending is the most volatile of aggregate demand it fluctuates up and down with changes in interest rates and expectations of future profits. When economic growth is driven by the multiplied effects of increasing exports, it is called export-led growth. The incentive effects of taxes on aggregate supply. Supply siders believe that tax cuts have powerful incentive effects, and claim that tax cuts will increase, not decrease, government tax revenues. Automatic stabilizers: tax and transfer adjustments that automatically occur during business cycles. Created only as a result of automatic stabilizers counteracting business cycles.
