ECO100Y1 Lecture Notes - Lecture 17: Transfer Payment, Parsec

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Graph 3: recessionary gap: policy intervention: yp - y0 = recessionary gap, g and/or t increase in autonomous expenditure, ad shifts right to ad1. U. s. 2008-2009 deep recession: increased g and reduced t: ad shifts right, recessionary gap reduced, but not eliminated, problem: government deficit (g-t) increased sharply, limiting political will to further increase g or reduce t. Outlays: / : government expenditures on goods and services [g, transfer payments to households [unemployment insurance, social assistance, public pensions, etc. ] effect/support income. G in the ae schedule refers to government expenditures on goods and services [and, thus, output produced]. Transfer payments are equivalent to negative taxes, and affect disposable incomes of households and hence consumption. Budget deficit exists if revenues < outlays (more spending compares to tax revenue) Not government expenditure (not g in ae=c+i+g+x-m) A tra(cid:374)sfer pa(cid:455)(cid:373)e(cid:374)t is a (cid:862)(cid:374)egative(cid:863) ta(cid:454) Suppose: ei benefit and t both fall by 10.

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