EC140 Chapter Notes - Chapter 22: Disposable And Discretionary Income, Transfer Payment, Canadian Dollar
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EC140 Full Course Notes
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Document Summary
Adding government and trade to the simple macro model. Fiscal policy: the use of the government"s tax and spending policies to achieve government objectives inluence national income in the short and long-run. Purchases of goods and services by the government are a direct part of aggregate desired expenditure, while transfer payment only indirectly afect aggregate expenditure. Assumption: level of government purchases (g) is autonomous with respect to the level of national income; does not change automatically as gdp changes. Any change in g is therefore a result of a government policy decision! Taxes reduce household"s disposable income relative to national income; transfer payments raise disposable income relative to national income! Net tax revenue (t): total tax revenue raised by the government minus total transfer payments made by the government; a positive igure and positively related to national income. Taxes can be assumed to be net taxes unless otherwise speciied. T = ty t is the net tax rate.
