EC140 Lecture Notes - Lecture 22: French Wine, Unemployment Benefits, W. M. Keck Observatory
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EC140 Full Course Notes
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Document Summary
Chapter 22 - adding government and trade to the simple macro. A government"s fiscal policy (the use of the government"s tax and spending policies to achieve government objectives) is defined by its plans for taxes and spending. Hence, desired government purchases, g, are part of aggregate desired expenditure. In chapter 20, we distinguished between government purchases of goods and services and government transfer payments. When the government hires a public servant, buys office supplies, purchases fuel for the canadian armed forces, or commissions a study by consultants, it is adding. The other part of government spending, transfer payments, also affects desired aggregate expenditure but only indirectly. Consider welfare or employment- insurance benefits, for example. The same is true of government transfers to firms, which often take the form of subsidies. However, when individuals or firms spend some of these payments on consumption or investment, their spending is part of aggregate expenditure. Thus, government transfer payments do affect aggregate expenditure.
