ECON 110 Chapter Notes - Chapter 32: Autarky, Real Interest Rate, Loanable Funds
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ECON 110 Full Course Notes
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Gov"t expenditure (constraint) = tax revenue + borrowing. A third category of gov"t spending is transfers to individuals and firms like before it is included as part of t, the gov"ts net tax revenue. Government constraint can now be written as: (g+ i d) t = borrowing. A budget deficit is any shortfall of current revenue below current expenditure: budget deficit = = (g+ i d) t. Gov"t debt is the outstanding stock of financial liabilities for the gov"t, equal to the accumulation of past budget deficits. Budget surplus is any excess of current revenue over current expenditure pay off debt. It"s the difference between the gov"t overall budget deficit & its debt-service payments: primary budget deficit = g t. The primary budget surplus/deficit shows the extent to which tax revenues the gov"ts spending program. We know that when the gov"t changes their expenditure or taxation it normally leads to a change in the gov"t budget deficit or surplus.