LAWS11-321 Lecture Notes - Lecture 4: Real Wages, Loanable Funds, Real Interest Rate
Document Summary
Revenues made up of: personal income tax primary source, corporate income tax smallest revenue source. Indirect taxes and other tax hst, tariffs, gasoline taxes. Outlays 3 categories: transfer payments largest by big margin (includes welfare, subsidies, grants, expenditure on goods and services national defence, government supplies, debt interest. Budget balance = revenues outlays: surplus: revenues > outlays, deficit: revenues < outlays. Deficit and debt government borrows to finance deficit: government debt total amount of government borrowing, sum of past deficits minus surplus, deficit increases borrowing, which increases debt, increasing interest payments. Debt and capital: government expenditure as investment purchasing capital to yield a return, government debt larger than capital debt has occurred to finance public consumption expenditure. Supply side-effects of fiscal policy i. e. raising taxes to move government deficit towards a surplus: full-employment real wage-rate adjusts to make quantity of labour demanded equal to labour supplied.
