ECON 110 Chapter Notes - Chapter 22: Disposable And Discretionary Income, Autonomous Consumption, Canadian Dollar

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24 Dec 2016
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ECON 110 Full Course Notes
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Adding government & trade to the simple macro model. Fiscal policy: the use of government"s tax and spending policies to achieve government objectives: a government"s fiscal policy influences national income in both the short and long run. It has an indirect effect, because when individuals or firms spend some of the transfer payments on consumption or investment, they are spending in part of aggregate expenditure. Taxes reduce a households" disposable income relative to national income. Transfer payments raise disposable income relative to national income. Net tax revenues: total tax minus transfer payments, denoted as t: net tax revenues are always positive, as transfer payments are smaller than total tax revenues. In this model, we assume that net tax revenues vary directly with the level of national income i. e. as national income rises, a tax system with given tax rates will yield more revenue. Government net tax revenue (t) = ty: in this formula, t is the net tax rate.

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