EC140 Chapter Notes - Chapter 22: Consumption Function, Ceteris Paribus, Expenditure Function

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8 Feb 2016
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EC140 Full Course Notes
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T = ty (where t is the net tax rate) The budget balance is the difference between g and t. If g < t: a budget surplus (purchases is below net revenue) If g > t: a budget deficit (purchases exceeds net revenue) When measuring the overall contribution of government to desired aggregate expenditure, all levels of government must be included: Combined purchase of provincial and municipal; government. When government hires a public servant, buys office supplies, purchases fuel for the canadian force, it is adding directly to the demands for the economy"s current output of goods and services. Government"s spending and transfer payments affect ae indirectly. Usually, government transfer funds to firms in the form of subsidies (does not affect ae). But firms spend some of these on consumption or investment (which affects ae) When income increases, people pay more taxes even though tax rates are unchanged, and the government would reduce its transfer to households.

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