EC140 Chapter Notes - Chapter 22: Fiscal Policy, Stabilization Policy, Open Economy
Textbook/Chapter 22
Government purchases:
- Fiscal policy is the use of the government’s tax and spending policies to achieve
government objectives
Net tax revenues:
- Net tax revenue is the total revenue minus transfer payments denoted T
- Net tax rate is the increase in net tax revenue generated when national income rises by
one dollar
The budget balance:
- Budget surplus is any excess of current revenue over current expenditure
- Budget deficit is any shortfall of current revenue below current expenditure
Provincial and municipal governments:
- All levels of government must be included when measuring the overall contribution of
government to desired aggregate expenditure
Net exports:
- Marginal propensity to import is the increase in import expenditures induced by a $1
increase in national income denoted by m
- IM = mY
- NX = X – mY
Shifts in the net export function:
- A rise in Canadian prices relative to those in other countries reduces Canadian net exports
at any level of national income
- A fall in Canadian prices increases net exports at any level of national income
Desired consumption and national income:
- The marginal propensity to consume out of national income is less than the marginal
propensity to consume out of disposable income in the presence of taxes
The AE function:
- Consumption is C = c + MPC * YD
- Investment is I
- Government purchases I G
- Net tax revenues is T = tY
- Exports is X
- Imports is IM – mY
- Desired consumption:
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EC140 Full Course Notes
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Document Summary
Fiscal policy is the use of the government"s tax and spending policies to achieve government objectives. Net tax revenue is the total revenue minus transfer payments denoted t. Net tax rate is the increase in net tax revenue generated when national income rises by one dollar. Budget surplus is any excess of current revenue over current expenditure. Budget deficit is any shortfall of current revenue below current expenditure. All levels of government must be included when measuring the overall contribution of government to desired aggregate expenditure. Marginal propensity to import is the increase in import expenditures induced by a increase in national income denoted by m. A rise in canadian prices relative to those in other countries reduces canadian net exports at any level of national income. A fall in canadian prices increases net exports at any level of national income.
