ECON 102 Lecture Notes - Lecture 11: Budget Constraint
Document Summary
When hh can save in gvt bonds/ checking account with cash. Wages = 1, consumption = labour, because wages = 1. Government issues currency in each period, so people can save. P t t t = gvt gives this amount to household, so it contributes to household income, and goes into household checking account. But it is also possible that households are taxed, which reduces household income, and thus gets taken out of household checking account m 1. Gvt acts on taxation through directly the checking account/ cash of individuals. Then gvt accepts reserve deposits at the central bank that pays gross interest of 1+i t. Federal government taxes/ subsidies, other side is central bank that gives checking accounts or not. Central bank doesn"t give checking accounts from hh but it takes reserves. Same government fulfils two roles and allows us to write gvt budget constraints.
