Textbook Notes (227,276)
CA (156,829)
Western (16,712)
Economics (650)
1022A/B (207)
Chapter 29

Economics 1022A/B Chapter 29: Fiscal Policy
Premium

by OneClass1274054 , Spring 2017
9 Pages
65 Views
Spring 2017

Department
Economics
Course Code
Economics 1022A/B
Professor
Jeannie Gillmore
Chapter
29

This preview shows pages 1-3. Sign up 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
find more resources at oneclass.com
find more resources at oneclass.com
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
find more resources at oneclass.com
find more resources at oneclass.com
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
find more resources at oneclass.com
find more resources at oneclass.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
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 B UDGET - 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 ➢ 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 NX = S – I + T – G ➢ Revenues > outlays, government has a budget surplus T = NX-S+I+G ➢ 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 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 - Effects of the Income Tax · Decreases quantity of labour and lower potential GDP · No effect on demand for labour (LD) because quantity of labour that firms plan to hire depends only on labour productivity and real wage rate · Shifts the supply curve leftward to LS + tax · Before-tax wage rate rises and after-tax wage rate falls · Tax wedge: gap between before-tax and after-tax wage rate - Effects of tax on Capital (Interest) Income · Quantity of capital decreases and potential GDP decreases · No effect on the demand for loanable funds · Shifts the SLF curve leftward to SLF + tax · Saving and investment decreases - The Laffer Curve: the relationship between tax rate and the amount of tax revenue · A higher tax rate does NOT always bring greater tax revenue · A higher tax rate brings in more revenue per dollar earned, but also decreases the number of dollar earned · For tax rates below T*, increase in tax rate increases tax revenue
More Less
Unlock Document

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

You've reached the limit of 4 previews this month

Create an account for unlimited previews.

Already have an account?

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit