EC140 Lecture Notes - Lecture 5: Macroeconomic Model, Consumption Function, Expenditure Function
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EC140 Full Course Notes
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Understand the basic mechanics of a macroeconomic model: closed economy - no trade, no government, and no taxes, constant prices. Chapter 22 - add trade and government. Chapter 23 - add changing prices after midterm 1. Governments have 2 functions in the model. Governments spend money: purchase goods and services, g - this is assumed to be autonomous with respect income (is not depended on how much money is in income) to, unrelated to amount of taxes they collect. G is autonomous expenditure of goods and services. Doesn"t income transfer, welfare insurance, medical bill o o. Governments collect money: governments collect money through taxes. Net tax revenues are taxes collected (minus) transfer payments. Constant net tax rate in the model (constant t rate * national income) Net tax revenue = what government collects - transfers o o o o. Budget deficits and surpluses: if t g > 0, we have a surplus.
