ECON-1006EL Lecture Notes - Lecture 22: Tax Expenditure
20 Jun 2018
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Tuesday September 19th
Chapter 22:
1936 — economies want to go to equilibrium.
Keynes — 1963 commenced that all economies will go to equilibrium but will be at any level of
income, although not only for employment. Wants us to spend and build surplus during good
times— During low employment lower taxes and create more jobs (ie. infrastructure etc) Don't
pursue a balanced budget.
If income increases, Consumption +Income produces a new equilibrium.
Desired expenditure — how much people would like to consume in comparison to their
incomes.
Governments enter the economy in 2 ways — spend money and collect taxes.
Tax revenue — is the tax rate multiplied by our income. i.e. 10% of income (.1xIncome)
Deficit— when the government spends (expenditures) more money than the taxes collected.
Surplus — When government expenditures are less than tax revenue
Fiscal Policy — using government and tax expenditures to raise income
Net exports is — exports - imports
Desired Aggregate expenditure — sum of all spending C+I+G+NX (or X - IM)
C = Consumption
I = Investment
G = Government Purchases
(X-IM) = Net exports; X; exports IM; imports
NX = Net exports
GDP = C + I + G + (X — IM)
Z = MPC(1+t) Y - m : Multiplier
Consumption Function: Relates the total desired consumption expenditures of all households to
the several factors that determine it. Disposable Income. Wealth. Interest Rates. Future
expectations.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
1936 economies want to go to equilibrium. Keynes 1963 commenced that all economies will go to equilibrium but will be at any level of income, although not only for employment. Wants us to spend and build surplus during good times during low employment lower taxes and create more jobs (ie. infrastructure etc) don"t pursue a balanced budget. If income increases, consumption +income produces a new equilibrium. Desired expenditure how much people would like to consume in comparison to their incomes. Governments enter the economy in 2 ways spend money and collect taxes. Tax revenue is the tax rate multiplied by our income. i. e. 10% of income (. 1xincome) De cit when the government spends (expenditures) more money than the taxes collected. Surplus when government expenditures are less than tax revenue. Fiscal policy using government and tax expenditures to raise income. Desired aggregate expenditure sum of all spending c+i+g+nx (or x - im)
