11-28-07 - 1) Effect of income taxes 2) Effect of interest...

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1) Effect of income taxes 2) Effect of interest taxes 3) Effect of budget deficit -when in full employment real GDP=Potential GDP -if income tax increases…. -and potential GDP reduced Effects of Interest Tax -interest is the price of loan able funds -recall capital is financed through loan able funds -recall that capital is driving force of economic growth -consider loan able fund market -suppose tax on interest increased -this reduces supply of LF -this means less capital Effect of Budget Deficit Recall GDP=C + I + G Also GDP=C + S + T S=savings T=Taxes -combine and rearrange I=S+ (T-G) S=private savings T-G=govt savings -if vot saving is negative budget deficit -overall SLF is private savings + govt savings -since govt operates budget deficit, overall savings< private savings -when overall SLF=DLF, that determines Q LF -if no budget deficit, overall savings =private savings -so when there is a budget deficit, savings are reduced Overall savings=private savings + govt savings
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This note was uploaded on 12/12/2008 for the course ECON 29486 taught by Professor Denniswilson during the Fall '06 term at Western Kentucky University.

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11-28-07 - 1) Effect of income taxes 2) Effect of interest...

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