ECO102H1 Chapter Notes - Chapter 22: Canadian Dollar, Foreign National, Output Gap
45
ECO102H1 Full Course Notes
Verified Note
45 documents
Document Summary
Chapter 22: adding government & trade to the simple macro model. We make assumption that level of government purchases, g, is autonomous with respect to level of national income. As gdp rises/falls, level of government"s transfer payments will generally change but we assume that g does not automatically change just because gdp changes. View any change in g as a result of government policy decision. Taxes reduce household"s disposable income relative to national income. Transfer payments raise disposable income relative to national income. Purpose of calculating effect of government policy on desired consumption expenditure, net effect of the two that matters. Net taxes: total tax revenue received by the government minus total transfer payments made by government & denoted, t. Transfer payments < total tax revenues, net tax revenues are positive. Disposable income is therefore < national income. Assume net tax revenues vary directly with level of national income but tax rate is autonomous policy variable.
