KEY CONCEPTS Canadian governments directly buy about 25 percent of GDP according to the national ac- counts data. They also spend about 17 percent on transfer payments to persons and business, including interest payments to holders of government bonds. Government expenditure G on goods and services, including the public services provided to households and business is a policy variable and an autonomous component of aggregate expenditure. Net taxes (NT=tY), the revenue collected by government from households, are difference between taxes collected and transfers paid. Disposable income is national income minus net taxes. Changes in disposable income cause changes in household consumption expenditure based on the MPC. The net tax rate (1) reduces changes in disposable income relative to national income and reduces the marginal propensity to consume out of national income to c(1-1). This lowers the slope of AE and the size of the multiplier. Government expenditure and net taxes affect equilibrium national income by changing both autonomous expenditure and the multiplier. The government budget describes what goods and services the government plans to buy during the coming year, what transfer payments it will make, and how it will pay for them. Most spending is financed by taxes, but some revenue comes from charges for services. The government budget balance is the difference between net revenues and government- expenditures. Because net tax revenues depend on national income (NT=tY) the actual budget balance is determined by the government's budget plan and the level of national income. The actual budget balance will change with changes in national income. A balanced budget has revenues equal to expenditures. O II
KEY CONCEPTS Canadian governments directly buy about 25 percent of GDP according to the national ac- counts data. They also spend about 17 percent on transfer payments to persons and business, including interest payments to holders of government bonds. Government expenditure G on goods and services, including the public services provided to households and business is a policy variable and an autonomous component of aggregate expenditure. Net taxes (NT=tY), the revenue collected by government from households, are difference between taxes collected and transfers paid. Disposable income is national income minus net taxes. Changes in disposable income cause changes in household consumption expenditure based on the MPC. The net tax rate (1) reduces changes in disposable income relative to national income and reduces the marginal propensity to consume out of national income to c(1-1). This lowers the slope of AE and the size of the multiplier. Government expenditure and net taxes affect equilibrium national income by changing both autonomous expenditure and the multiplier. The government budget describes what goods and services the government plans to buy during the coming year, what transfer payments it will make, and how it will pay for them. Most spending is financed by taxes, but some revenue comes from charges for services. The government budget balance is the difference between net revenues and government- expenditures. Because net tax revenues depend on national income (NT=tY) the actual budget balance is determined by the government's budget plan and the level of national income. The actual budget balance will change with changes in national income. A balanced budget has revenues equal to expenditures. O II
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Please provide a summary of these key points
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education