Economics 1022A/B Lecture Notes - Lecture 13: Government Debt, Aggregate Supply, Fiscal Policy

• School: Western University
• Department: Economics
• Course: Economics 1022A/B
• Professor: Emilie Rivers

Document Summary

Investment income: federal government outlays in the 2016 budget were billion, outlays are classified in three categories, transfer payments, expenditures on goods and services, debt interest. If revenues exceed outlays, the government has a budget surplus. If outlays exceed revenues, the government has a budget deficit: the government"s budget balance is equal to its revenues minus its outlays, the government borrows to finance its debt, government debt is the total amount of government borrowing. If revenues equal outlays, the government has a balanced budget. It is the sum of past deficits minus the sum of past surpluses. Supply-side effects of fiscal policy: a decrease in taxes can affect incentives and can increase aggregate supply. The quantity of capital decreases and potential gdp decreases. The graph on the right shows the laffer curve. The laffer curve shows the relationship between the tax rate and the amount of tax revenue collected.