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Chapter 29

Economics 1022A/B Chapter Notes - Chapter 29: Deficit Spending, Autarky, Real WagesPremium

9 pages68 viewsSpring 2017

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

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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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