CH 22 - Adding Gvt + Trade to Simple Macro Model

CH 22 - Adding Gvt + Trade to Simple Macro Model - CHAPTER...

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CHAPTER 22 ADDING GOVERNMENT + TRADE TO THE SIMPLE MACRO MODEL 22.1 INTRODUCING GOVERNMENT Fiscal Policy = the use of the government’s tax + spending policies GOVERNMENT PURCHASES (G): Government desired purchases G = assumed to part of autonomous AE NET TAX REVENUES: Net Taxes (T) = Total Tax Revenue (tY) – Transfer Payments o Net Taxes = Taxes – Transfer payments affect AE indirectly through households’ disposable income Net Tax Rate (aka MPTax) = the increase in net tax revenue generated when national income rises by $1 Taxes reduce disposable income whereas transfers increase disposable income BUDGET BALANCE: Budget Balance = Net Tax Rev (T) – Gvt Purchases (G) o Positive = budget surplus Positive public saving o Negative = budget deficit Budget Surplus = any excess of current revenue over current expenditure Budget Deficit = any shortfall of current revenue below current expenditure Private Saving = saving on the part of the households the part of disposable income that is not spend on current consumption Public Saving = saving on the part of governments equal to the budget surplus PROVINCIAL + MUNICIPAL GOVERNMENTS When measuring the overall contribution of government to desired aggregate expenditure, all levels of government must be included
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CH 22 - Adding Gvt + Trade to Simple Macro Model - CHAPTER...

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