ECON 1010 Study Guide - Final Guide: Government Budget Balance, Real Wages, Aggregate Supply
Document Summary
So fiscal policy is budgets of the government activity that achieve macroeconic policy objectives. The budget balance formula is budget balance revenues outlays. Revenues have 4 sources: personal income tax, corporate tax, indirect, investment income. Outlays have 3 sources: transfer payment, debt interest , goods and services. Government debt (total amount of government borrowing) = past deficits past surplus. Income tax changes full employment and potential gdp. Higher income taxes decrease incentives to work by creating the tax wedge. Tax wedge: the gap b. w before tax wage rate after tax-wage rate. The supply of labour decreases b/c the tax decreases the after-tax wage rate. In this case the after-tax rate falls while the before-tax rate increases. Taxes on consumption increase the wedge by increasing consumption taxes, lowering rl wage rate and labour supply. This decreases the supply of loanable funds and investment and saving decrease.