ECON 20 Lecture Notes - Lecture 30: Automatic Stabilizer, Business Cycle, Aggregate Demand
Document Summary
Taxes are not directly a component of the economy, but they do have an indirect effect on the demand side through consumption. If taxes decrease, disposable income will increase, consumption will increase, and ad will increase. Tax rates also matter through the supply side because of their effect on incentives to work, save, and invest. Total tax revenues relative to gdp had a slow upward trend through 2000 during strong economic times. The federal government ran huge budget deficits during world war ii (well over 20% of. The government ran a surplus most of the time in the immediate period after world. These surpluses began to pay down the huge debts incurred during that war. Look at the chart on the course website. Starting in the 1970s, the federal government began to run persistent deficits, with the exception of the brief surplus period in the late 1990s through 2001. The deficit is obviously affected by the business cycle.