MGEA06H3 Lecture Notes - Kolmogorov Space, Consumption Function
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MGEA06H3 Full Course Notes
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Enriching the model including government and foreign sector. The government enters the model in the following ways: collecting taxes, t, the government collects taxes from households and firms to finance its spending, assumption: Taxes are positively related to income: tax function: T = t0 + t1y, where t0 = autonomous taxes t1 = tax rate & 1 > t1 > 0. www. notesolution. com. Transfer payments are inversely related to income: transfer payments function: Tr = tr0 tr1y, where tr0 = autonomous transfer tr1 = benefit reduction rate & 1 > tr1 > 0: spending on final goods and services, g, it is also called government purchases, and it is the government expenditure on final goods and services, assumption: G is an autonomous variable, (i. e. , its value is given), i. e. , The foreign sector: when an economy trades with foreign countries, this economy is an open economy.