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Chapter 22 Adding Government and Trade to the Simple Macro Model - Coggle…
Chapter 22 Adding Government and Trade to the Simple Macro Model
taxes, transfer, and net taxes
Taxes reduce households' disposable income relative to national income
Transfer payments raise disposable income relative to national income
Net taxes revenue is the total tax revenue minus transfer payments
the budget balance
is the difference between total government revenue and total government expenditure
T - G
positive = budget surplus
negative = budget deficit
the net export function
NX = X - mY
international relative price
any change in the prices of Canadian products relative to the prices of foreign products will cause both imports and exports to change
A rise in Canadian prices relative to those in other countries reduces Canadian net exports at any level of national income. A fall in Canadian prices increases net exports at any level of national income
the simple multiplier in an open economy with government
The presence of imports and taxes reduces the marginal propensity to spend out of national income and therefore reduces the value of simple multiplier
with government: z = 1 / (1 - [MPC (1 - t) - m)
fiscal policy
is the use of the government's tax and spending policies to achieve government objectives
changes in government purchases
the government's transfer payments generally do change as GDP rises or falls, but it is G that is part of desired aggregate expenditure
changes in net tax rates
net tax rate = the increase in net tax revenue generated when national income rises by one dollar
demand-determined output
2 situations that national income is demand-determined
when there are unemployed resources and firms have excess capacity, firms will often be prepared to provide whatever is demanded from them at unchanged prices
occurs at price settlers.