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Chapter 29
Economics 1022A/B Chapter Notes - Chapter 29: Deficit Spending, Autarky, Real WagesPremium
9 pages68 viewsSpring 2017
School
Western UniversityDepartment
EconomicsCourse Code
Economics 1022A/BProfessor
Jeannie GillmoreChapter
29This preview shows pages 1-3. to view the full 9 pages of the document.

Chapter 29 Fiscal Policy
Fiscal Policy – the use of the federal budget to achieve macroeconomic objectives such as full
employment, sustained long-term economic growth, and price level stability
THE FEDERAL BUDGET
- Federal budget: annual statement of revenues and outlays of
the Government of Canada
,
together with the laws and regulations that approve and support those revenues and
outlays
· Purpose = to finance the business of government and to pursue government’s fiscal
policy
- Provincial budget: annual statement of revenues and outlays of a
provincial government
,
together with the laws and regulations that approve or support those revenues and outlays
- Three main items in a federal budget are:
· Revenues $262 billion in 2013
➢ Personal income taxes – largest revenue source
➢ Corporate income taxes – smallest revenue source
➢ Indirect and other taxes
➢ Investment income
· Outlays $276 billion in 2013
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➢ Transfer payments (payments to individuals, businesses, other levels of government,
and rest of the world)
➢ Expenditure on goods and services (government expenditure on final goods/services;
G)
➢ Debt interest (interest on government debt)
· Budget balance = Revenues – Outlays
➢ Revenues > outlays, government has a budget surplus
➢ Outlays > revenues, government has a budget deficit
➢ Revenues = Outlays, balanced budget
- Government debt = sum of past deficits – sum of past surpluses
· When government budget is in deficit, government debt increases
· When government budget is in surplus, government debt decreases
NX = S – I + T – G
T = NX-S+I+G
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SUPPLY-SIDE EFFECTS OF FISCAL POLICY
- A decrease in taxes can affect incentives and can increase aggregate supply
· Cut in income tax increases supply of labour
· Cut in capital taxes increases investment and saving
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