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9 Cards in this Set
- Front
- Back
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How does the government affect the macroeconomy?
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Fiscal policy= the government taxing and spending behavior
Discretional fiscal policy= refers to the changes in taxes or spending that are the result of deliberate changes in government policy Monentary policy= refers to the behavior of the Federal reserve concering the nations money supply. |
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net taxes (T)
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taxes paid by firms and households to the government minus the transfer payments made to households by the government
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disposable or after-tax income (Yd)
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total income misnus net taxes
Y - T |
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What are lump sum taxes?
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Taxes that do not depend on income
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budget deficit
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the difference between what a government spends and what it collects in taxes during a given period: G -T
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What does the identity Y = C + S + T indicate?
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It shows that the government takes net taxes and then household divide the rest into consumption and savings
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What is the change in aggregate expedenture with government?
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AE = C + I + G (purchases of government of goods and services)
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What happens when G and T flux?
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When G exceeds T, the government must borrow fromt he public to finance the deficit, and it does so by selling treasurry bonds and bills. In this case part of of household savings (S) goes to the government.
If G is less than T, which mean the government is spending less than its collecting taxes. the governement is running surplus, a budget surplus is simply a negative budget deficit. |
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what is the new consumption function with government spending?
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C = a+b(Y -T ) which is now depending on incomce instead of before tax income!
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