EC140 Lecture Notes - Lecture 5: Consumption Function, Canadian Dollar, Expenditure Function
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EC140 Full Course Notes
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Document Summary
Governments have 2 functions in the model. Governments spend money: purchase goods and services, g, this is assumed to be autonomous with respect to. Governments collect money: net tax revenues are taxes collected minus transfer payments, governments collect money through taxes income. =0: constant net tax rate in the model: =(cid:1851) If t-g > 0, we have a surplus. If t-g < 0, we have a deficit. Levels of government: federal structure in canada implies multiple levels of government, model assumes all levels of government included in t and g. Exports are determined by foreign households and firms: exports, x, are autonomous with respect to canadian income. Imports are determined by canadian spending decisions: as incomes rise, total imports will rise (cid:1850)=(cid:1850)0 (cid:1839)=(cid:1851) Net exports are exports minus imports or: (cid:1840)(cid:1850)=(cid:1850) (cid:1851) Net exports (orange) are exports minus imports. Various factors will lead to shifts in the net export function. Increases shift the line up: decreases shift the line down.