EC140 Lecture Notes - Lecture 20: Real Interest Rate, Potential Output, Deficit Spending
21
EC140 Full Course Notes
Verified Note
21 documents
Document Summary
Net tax revenue (t) = taxes collected total transfers. Government spending, g, is part of aggregate expenditure. So far, budget surplus defined as taxes minus government spending. A simplification- now separate borrowing and payments on government debt. Government debt is the total stock of financial liabilities for the government. A budget surplus or deficit is the difference between current revenue and current expenditure: expenditure > revenue = deficit, expenditure < revenue = surplus. Be paid from net tax revenue or borrowing. Expenditure include spending and interest on the debt: g+ i * d = t + borrowing. The budget deficit is thus the change in debt: change in debt = g+ i * d -t. Governments don"t have direct control over debt service ( i * d) Previous governments lead to the level of debt. Primary budget deficit ignores debt service: primary budget deficit = g -t. Two largest areas where government expenditure has grown, health care and education.
