Textbook Notes (368,051)
Canada (161,599)
ECON 295 (70)
Chapter

Econ 295 Readings 22-25

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Department
Economics (Arts)
Course
ECON 295
Professor
Christopher Ragan
Semester
Winter

Description
CHAPTER22FiscalPolicyuseofthegovernmentstaxandspendingpoliciestoachievegovernmentobjectivesGovernmentSpendingdesiredgovernmentpurchasesGarepartofaggregatedesiredexpenditureTransferPaymentsindirectlyaffectsdesiredaggregateexpenditureNodirectdemandsonnationsproductionofgoodsandservicesHoweverspendingofthesepaymentsispartofaggregateexpenditurethusonlythroughtheeffectonhouseholdsdisposableincomeNetTaxestotaltaxrevenueminustransferpaymentsdenotedT Reducedisposableincomerelativetonationalincome NetTaxRevenuesarepositive Varydirectlywithlevelofnationalincomeo Taxrateisanautonomouspolicy TtYNetTaxRateincreaseinnettaxrevenuegeneratedwhennationalincomerisesbyonedollarMarginalPropensitytoTaxBudgetBalancedifferencebetweentotalgovernmentrevenueandtotalgovernmentexpenditure NetTaxRevenueGovernmentPurchasesTGBudgetSurplusanyexcessofcurrentrevenueovercurrentexpenditureTGBudgetDeficitanyshortfallofcurrentrevenuebelowcurrentexpenditureTG Mustborrowexcessofspendingoverrevenues IssuanceofadditionalgovernmentdebtbondstreasurybillsPurchasesofProvincesMunicipalitiesPurchasesofFederalGovernmentWhenmeasuringoverallcontributionofgovernmenttodesiredaggregateexpenditurealllevelsofgovernmentmustbeincludedFOREIGNTRADENetExportsdependonspendingdecisionsmadebyforeignhouseholdsandfirmsthatpurchaseCanadianproducts ExportsAutonomousexpenditure ImportsDependonCanadianpopulationo IMmYo mMarginalPropensitytoImportincreaseinimportexpendituresinducedbya1increaseinnationalincome NXXmY NetExportsarenegativelyrelatedtoYShiftsintheNetExportFunctionChangesinForeignIncomeleadstoanincreaseinthequantityofCanadiangoodsdemandedbyforeigncountriesChangesinInternationalRelativePricesanychangeinthepricesofCanadiangoodsrelativetothoseofforeigngoodswillcausebothimportsandexportstochange Mostimportantcauseofachangeininternationalrelativepricesisachangeintheexchangerateo DepreciationoftheCADForeignerspaylessCanadianspaymoretobuyabroadLessImportsMoreExportsAllcomponentsofdomesticexpenditureincludesomeimportcomponentEQUILIBRIUMNATIONALINCOMEEquilibriumNationalIncomelevelofincomeatwhichdesiredaggregateexpenditureequalsactualnationalincomeDesiredConsumptionandNationalIncome WhenNetTaxesarepositivedisposableincomenationalincome1 t10nettaxrevenueis10ofnationalincome2 disposableincomeistherefore90ofnationalincomeYYT09YD3 C3008YDMPCoutofdisposableincomeis084 C300809Y30072YInthepresenceoftaxestheMPCoutofnationalincomeislessthantheMPCoutofdisposableincomeTheAEFunctionCabYconsumptionDIautonomousinvestmentGautonomousgovernmentpurchasesTtYnettaxrevenuesXautonomousexportsIMmYimportsCab1tYAECIGXIMab1tYIGXmYAEaIGXb1tmYautonomousinducedexpenditureexpenditureWhenoutputisdemanddeterminedequilibriumlevelofnationalincomeisthelevelofnationalincomewheredesiredaggregateexpenditurelevelofnationalincomeIfNationalIncomeEquilibriumAmountpressuretochangeIfNationalIncomeDesiredAggregateExpenditurenopressureforoutputtochangeChangesinEquilibriumNationalIncomeMultiplierwithTaxesandImportsThepresenceofimportsandtaxesreducesthemarginalpropensitytospendzoutofnationalincomeandthusreducesthevalueofthesimplemultiplierWithoutgovernmentandforeigntradezMPCSM11zSM11MPC
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