EC140 Lecture Notes - Lecture 7: Excise, Pension, Sales Tax

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29 Jan 2019

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EC140 Lecture Notes - Lecture 7: Excise, Pension, Sales Tax

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Document Summary

Rarer change would be change in slope of ae: The multiplier is the ratio of the change in equilibrium income due to the change in the autonomous component of ae. The simple multiplier is derived from the equilibrium model. One implication: a change in consumer confidence can itself change equilibrium income. Basic idea an increase in autonomous spending (e. g. i0 increases) causes an increase in income if this were the end of the story the multiplier would be 1. Add the government sector and the foreign sector to the simplest model. This makes the model more realistic and useful. Allows us to begin to understand one of the roles of the government sector in a mixed economy. An economy where there is both a significant private sector and a significant public sector. Foreign trade ratio as a ratio of gdp. Government includes federal, provincial and municipal with a very blurry line around the. G: government purchases of goods and services.

Related Questions

On the planet Omicron Persei 8, government spending is $1000, net taxes are $1200, and planned investment is $1400. Consumers spend according to the equation C = 100 + 0.8Yd, where Yd represents disposable income. Given this information, fill out the table below to determine which of the output levels represents a macroeconomic equilibrium, then answer the questions that follow. Output (Income) Y Net Taxes T Disposable Income Yd Consumption C Planned Investment I Government Purchases G Planned Aggregate Expenditure AE Unplanned Inventory Change 6200 1200 5000 3850 1400 1000 6250 -50 6700 1200 5500 4225 1400 1000 6625 75 7200 1200 6000 4600 1400 1000 7000 200 7700 1200 6500 4975 1400 1000 7375 325 8200 1200 7000 5350 1400 1000 7750 450

An a. Which level of output is a macroeconomic equilibrium? There is no level of equilibrium based on inventory levels.

b. Is the government budget balanced, in deficit, or surplus, and by how much? Since the government is spending less than it is collecting in taxes, we are showing a surplus.

c. Find the marginal propensity to consume, and the marginal propensity to save. d. Find the government spending multiplier. If the government wanted to increase the equilibrium level of income by $1,000, how much would it have to increase government purchases? e. Find the tax multiplier. If net taxes were lowered by $100, what effect would it have on the equilibrium level of income? Give a specific numerical answer.