ECON102 Lecture Notes - Lecture 6: Potential Output, Real Interest Rate, Transfer Payment

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turquoisegnat833

15 Dec 2016

School

University of Waterloo

Department

Economics

Course

ECON102

Professor

Maryann Vaughan

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ECON102 Full Course Notes

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Federal budget = annual statement of the federal government"s outlays and revenues: to finance the activities of the federal government, to achieve macroeconomic objectives. Revenue = personal income taxes + corporate income taxes + indirect taxes + investment income. Outlays = transfer payments + expenditure on goods and services + debt interest. Government debt = total amount that the government borrowing. Fiscal policy = the use of federal budget to achieve macroeconomic objectives (ie. full employment), sustained economic growth, and price level stability: sum of past deficits past surpluses. Supply of labour (cid:1526) tax decreases the after-tax wage rate: ls = labour supply, comes from people, ld = labour demand, comes from firms. An income tax changes full employment and potential gdp. Before-tax real wage rate rises, but after-tax real wage rate falls. Tax wedge = gap between the before-tax and after-tax wage rate.

Related Questions

The federal government collected less in total individual income taxes in 1983 than in 1982.

Can we conclude that Congress and the president cut individual income tax rates in 1983?

Yes. Since the same amount of income was earned, if tax collection was down, the tax rate must have been cut.

No. The tax rates might have stayed the same, but the process of collection may have changed.

Yes. Since the same number of people would be paying taxes, if tax collection was down, the tax rate must have been cut.

No. It could be that the economy contracted, so less income was earned and less was paid in tax.

Fiscal policy refers to:

The government's use of taxes and expenditures to achieve macroeconomic policy objectives.

The Fed's use of interest rates to achieve macroeconomic policy objectives.

The Fed's use of taxes and expenditures to achieve macroeconomic policy objectives.

The government's use of interest rates to achieve macroeconomic policy objectives.

Fiscal policy is carried out primarily by

A) the Federal government.

B) state and local governments working together.

C) state governments alone.

D) local governments alone.

Fiscal policy refers to the:

A) manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

B) manipulation of government spending and taxes to achieve greater equality in the distribution of income.

C) altering the interest rate to change aggregate demand.

D) fact that equal increases in government spending and taxation will be contractionary.

Expansionary fiscal policy is so named because it:

A) involves an expansion of the nation's money supply.

B) necessarily expands the size of government.

C) is aimed at achieving greater price stability.

D) is designed to expand real GDP.

An appropriate fiscal policy for severe demand-pull inflation is:

A) an increase in government spending.

B) depreciation of the dollar.

C) a reduction in interest rates.

D) a tax rate increase.

29. The amount by which government expenditures exceed revenues during a particular year is the:

A) public debt.

B) budget deficit.

C) full-employment.

D) GDP gap.

30. If actual GDP is greater than potential GDP, we have

A) a negative GDP gap

B) a positive GDP gap

C) minimum GDP gap

D) maximum GDP gap

31. Money functions as:

A) a store of value.

B) a unit of account.

C) a medium of exchange

D) all of the choices

pinkhedgehog911

The Modified Keynesian Model

Y = C + I + G + X â IM â¦ equilibrium condition in a 4-sector model where:

C = 150 + 0.9DI â¦ consumption function

I = 50 â¦ autonomous investment

G = 100 â¦ autonomous government spending

X = 200 â¦ autonomous exports

IM = 100 â¦ autonomous imports

And also:

DI = Y â T + Tr T = 0 â¦ autonomous taxes

Tr = 0 â¦ autonomous transfer payments

YF = 5000 â¦ full-employment Y

1. Solve for the equilibrium level of real output/income (Y*) in this economy.

2. Given the model above, net exports equal $________. Does this represent a trade deficit or trade surplus?

3. Given the model above, the federal budget has a (deficit/surplus) equal to $________.

4. What is the value of the MPC? â¦ the value of the MPS?

5. Calculate the âoversimplifiedâ expenditure multiplier.

6. Suppose that full-employment (YF) equals $5000. Is there a recessionary or inflationary output gap?

7. (Refer to question â6â.) How much is the gap equal to?

8. Suppose the government chooses to eliminate the gap by using expansionary fiscal policy (i.e., increasing G). Given the numbers above, by how much would government spending (G) need to increase to achieve the goal of full-employment?

9. Suppose instead that the government decided to lower taxes to eliminate the output gap in question â6â. How much would taxes need to fall to achieve the goal of full-employment?

10. Which action (raising G or lowering T) has the largest effect on the federal budget deficit and the national debt?

11. Suppose the national debt equaled $6000 before the tax cut (refer to question â9â). What would be the value of the national debt after this policy action?

azurellama883

ECON102 Lecture Notes - Lecture 6: Potential Output, Real Interest Rate, Transfer Payment

ECON102 Full Course Notes

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