ch24 - Chapter 24 Fiscal Policy Government Budgets The...

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Chapter 24 Fiscal Policy Government Budgets The annual statement of the outlays and revenues of the government of Canada, together with the laws and regulations that approve and support those outlays and revenues, make up the federal budget . A provincial budget is an annual statement of the revenues and outlays of a provincial government, together with the laws and regulations that approve or support those revenues and outlays. Fiscal policy is the use of the federal budget to achieve macroeconomic objectives such as full employment, sustained long-term economic growth, and price level stability. Federal government revenues in the 2005-06 budget were projected at $200 billion. These revenues come from four sources: o Personal income taxes o Corporate income taxes o Indirect taxes o Investment income Federal government outlays in the 2005-06 budget were projected at $196 billion. Outlays are classified in three categories: o Transfer payments o Expenditures on goods and services o Debt interest The government’s budget balance is equal to its revenues minus its outlays. If revenues exceed outlays, the government has a budget surplus . If outlays exceed revenues, the government has a budget deficit . If revenues equal outlays, the government has a balanced budget . The government borrows to finance its debt. Government debt is the total amount of government borrowing. It is the sum of past deficits minus the sum of past surpluses. The total government sector of Canada includes provincial and local governments as well as the federal government. Provincial and local government outlays are greater than federal government outlays.
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In today’s world, almost all countries have budget deficits. The biggest deficit relative to GDP is in Japan, where the deficit is almost 7 percent of GDP. Only a few countries, including Canada have budget surpluses. Fiscal Policy Multipliers Fiscal policy actions can be automatic or discretionary. Automatic fiscal policy is a change in fiscal policy that is triggered by a change in the state of the economy.
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