Podcast
Questions and Answers
How do government's transfer payments to individuals primarily influence aggregate expenditure?
How do government's transfer payments to individuals primarily influence aggregate expenditure?
- Indirectly, through changes in the consumption function. (correct)
- Indirectly, through shifts in the investment function.
- Directly impacting aggregate expenditure.
- Indirectly, through adjustments in net exports.
Why are government expenditures like Old Age Security payments excluded from the government component (G) of aggregate expenditure?
Why are government expenditures like Old Age Security payments excluded from the government component (G) of aggregate expenditure?
- They are transfer payments that do not directly demand Canada's total output. (correct)
- They are directly included in consumption (C) as they become recipients' consumption expenditure.
- These are transfers from recipients to taxpayers, not included in G.
- The revenues for these payments do not originate from tax collection.
What levels of government are encompassed within the G and T components in national-income accounts?
What levels of government are encompassed within the G and T components in national-income accounts?
- Only provincial and federal governments.
- All levels of government. (correct)
- Only the federal government.
- Only provincial governments.
How do economists typically define a 'budget surplus'?
How do economists typically define a 'budget surplus'?
If government purchases (G) are $300 and net tax revenue equals 0.14Y, what is the government budget when Y = $2000?
If government purchases (G) are $300 and net tax revenue equals 0.14Y, what is the government budget when Y = $2000?
If G = $300 and net tax revenue is 0.12Y, at what level of Y is the government budget balanced?
If G = $300 and net tax revenue is 0.12Y, at what level of Y is the government budget balanced?
If G = $400 and net tax revenue is 20% of national income (Y), for what values of Y is government saving negative?
If G = $400 and net tax revenue is 20% of national income (Y), for what values of Y is government saving negative?
If G = $600 and net tax revenue is 10% of Y, at what level of Y is the government budget balanced?
If G = $600 and net tax revenue is 10% of Y, at what level of Y is the government budget balanced?
If G = $300 and net tax revenue is 0.3Y, under what condition is the government budget in surplus?
If G = $300 and net tax revenue is 0.3Y, under what condition is the government budget in surplus?
How do transfer payments by the government affect net tax revenues?
How do transfer payments by the government affect net tax revenues?
If real national income (Y) is $800 and government purchases are $200, what value of t (net tax rate) is necessary for a balanced budget, given net tax revenues equal tY?
If real national income (Y) is $800 and government purchases are $200, what value of t (net tax rate) is necessary for a balanced budget, given net tax revenues equal tY?
Given Y = $400 and a government net tax rate of 10%, if the government has a budget surplus, what must be true of government purchases?
Given Y = $400 and a government net tax rate of 10%, if the government has a budget surplus, what must be true of government purchases?
If the government's net tax rate increases, how will disposable income and net tax revenue be affected for a given level of national income?
If the government's net tax rate increases, how will disposable income and net tax revenue be affected for a given level of national income?
How does including government in a simple macro model affect desired aggregate expenditure?
How does including government in a simple macro model affect desired aggregate expenditure?
In a simple macro model, what is generally assumed about a country's exports and imports?
In a simple macro model, what is generally assumed about a country's exports and imports?
When determining the AE function for an open economy with government, how is it typically assumed that real national income affects net exports?
When determining the AE function for an open economy with government, how is it typically assumed that real national income affects net exports?
In a simple macro model, what relationship does the net export (NX) function indicate between net exports and domestic national income?
In a simple macro model, what relationship does the net export (NX) function indicate between net exports and domestic national income?
What factor can cause a movement along the net export (NX) function?
What factor can cause a movement along the net export (NX) function?
What can cause a parallel upward shift in the net export (NX) function?
What can cause a parallel upward shift in the net export (NX) function?
What could cause the net export (NX) function to shift upward and flatten?
What could cause the net export (NX) function to shift upward and flatten?
Which of the following can cause a downward shift and steepening of the net export (NX) function?
Which of the following can cause a downward shift and steepening of the net export (NX) function?
At what point does the net export (NX) function cross the horizontal axis?
At what point does the net export (NX) function cross the horizontal axis?
All other things being equal, what effect does a rise in domestic prices relative to foreign prices have on the net export (NX) function?
All other things being equal, what effect does a rise in domestic prices relative to foreign prices have on the net export (NX) function?
What happens to the net export (NX) function when domestic prices fall relative to foreign prices, all other things being equal?
What happens to the net export (NX) function when domestic prices fall relative to foreign prices, all other things being equal?
What impact does a rise in the Canadian-dollar price of foreign currency have on Canada's net export (NX) function?
What impact does a rise in the Canadian-dollar price of foreign currency have on Canada's net export (NX) function?
How does a fall in the Canadian-dollar price of foreign currency impact Canada's net export (NX) function, assuming all other factors are constant?
How does a fall in the Canadian-dollar price of foreign currency impact Canada's net export (NX) function, assuming all other factors are constant?
How does a decrease in domestic national income affect the net exports (NX) function?
How does a decrease in domestic national income affect the net exports (NX) function?
How does an increase in foreign income, other things being equal, affect the net export (NX) function?
How does an increase in foreign income, other things being equal, affect the net export (NX) function?
Considering the net export function, what impact does an increase in domestic national income have, assuming all other factors remain constant?
Considering the net export function, what impact does an increase in domestic national income have, assuming all other factors remain constant?
Suppose exports are $200 and imports are given by $IM = 0.2Y$. At what level of national income will net exports equal zero?
Suppose exports are $200 and imports are given by $IM = 0.2Y$. At what level of national income will net exports equal zero?
Based on Figure 22-1 (not provided, but assuming a standard graphical representation of import, export, and net export functions), how could the function for desired imports for this economy be expressed?
Based on Figure 22-1 (not provided, but assuming a standard graphical representation of import, export, and net export functions), how could the function for desired imports for this economy be expressed?
Based on Figure 22-1 (not provided), which equation best represents the net export function for this economy?
Based on Figure 22-1 (not provided), which equation best represents the net export function for this economy?
Using Figure 22-1 (assuming exports are fixed and imports are a function of Y), if actual national income is $1000, what are net exports equal to?
Using Figure 22-1 (assuming exports are fixed and imports are a function of Y), if actual national income is $1000, what are net exports equal to?
Based on Figure 22-1 (not provided), if actual national income is $2000, what are imports equal to?
Based on Figure 22-1 (not provided), if actual national income is $2000, what are imports equal to?
Refer to Table 22-1 (provided). What are the correct values for the level of net exports (a, b, c, and d) at each level of national income?
Refer to Table 22-1 (provided). What are the correct values for the level of net exports (a, b, c, and d) at each level of national income?
Refer to Table 22-1 (provided). What is the marginal propensity to import?
Refer to Table 22-1 (provided). What is the marginal propensity to import?
Refer to Table 22-1. The net export function can be expressed as:
Refer to Table 22-1. The net export function can be expressed as:
Refer to Table 22-1. On a graph of the net export function for this economy, at what level of Y would the NX function intersect the horizontal axis?
Refer to Table 22-1. On a graph of the net export function for this economy, at what level of Y would the NX function intersect the horizontal axis?
Refer to Table 22-1. In this economy, if actual national income increases by $600, the level of imports will
Refer to Table 22-1. In this economy, if actual national income increases by $600, the level of imports will
How do government transfer payments primarily influence aggregate expenditure in a macroeconomy?
How do government transfer payments primarily influence aggregate expenditure in a macroeconomy?
Why are Old Age Security and employment insurance categorized as transfer payments rather than government purchases (G) in GDP calculations?
Why are Old Age Security and employment insurance categorized as transfer payments rather than government purchases (G) in GDP calculations?
In national-income accounting, which levels of government are included when measuring government purchases (G) and net taxes (T)?
In national-income accounting, which levels of government are included when measuring government purchases (G) and net taxes (T)?
In economics, how is a 'budget surplus' commonly defined and measured?
In economics, how is a 'budget surplus' commonly defined and measured?
Assume government purchases (G) are fixed at $400 billion and net tax revenue is 15% of national income (Y). What level of national income (Y) will result in a government budget surplus of $50 billion?
Assume government purchases (G) are fixed at $400 billion and net tax revenue is 15% of national income (Y). What level of national income (Y) will result in a government budget surplus of $50 billion?
If government purchases (G) are $500 and net tax revenue is 0.25Y, at what level of national income (Y) will the government budget be balanced?
If government purchases (G) are $500 and net tax revenue is 0.25Y, at what level of national income (Y) will the government budget be balanced?
The government spends $700, and net tax revenue is 15% of Y. For what level of Y is government saving negative and equal to -$100?
The government spends $700, and net tax revenue is 15% of Y. For what level of Y is government saving negative and equal to -$100?
Government purchases (G) are constant at $800 billion, and net tax revenue is 10% of national income (Y). At what level of national income (Y) does the government budget achieve a balanced budget?
Government purchases (G) are constant at $800 billion, and net tax revenue is 10% of national income (Y). At what level of national income (Y) does the government budget achieve a balanced budget?
Given government purchases (G) of $250 billion and a net tax rate of 0.25Y, under what condition will the government budget be in surplus?
Given government purchases (G) of $250 billion and a net tax rate of 0.25Y, under what condition will the government budget be in surplus?
How do government transfer payments influence the calculation of net tax revenues?
How do government transfer payments influence the calculation of net tax revenues?
Suppose real national income (Y) is $1,000 and government purchases are $300. If net tax revenues equal tY, what net tax rate (t) is required for a balanced budget?
Suppose real national income (Y) is $1,000 and government purchases are $300. If net tax revenues equal tY, what net tax rate (t) is required for a balanced budget?
If Y = $600 and the government's net tax rate is 15%, what condition on government purchases (G) is necessary for the government to have a budget surplus?
If Y = $600 and the government's net tax rate is 15%, what condition on government purchases (G) is necessary for the government to have a budget surplus?
How does an increase in the government's net tax rate affect disposable income and net tax revenue for a given level of national income?
How does an increase in the government's net tax rate affect disposable income and net tax revenue for a given level of national income?
In a macro model, how does the inclusion of government spending and taxation affect the aggregate expenditure (AE) directly and indirectly?
In a macro model, how does the inclusion of government spending and taxation affect the aggregate expenditure (AE) directly and indirectly?
In a simple macroeconomic model, what is the standard assumption regarding a country's exports and imports?
In a simple macroeconomic model, what is the standard assumption regarding a country's exports and imports?
When modelling aggregate expenditure (AE) in an open economy with government, how does real national income typically impact net exports?
When modelling aggregate expenditure (AE) in an open economy with government, how does real national income typically impact net exports?
In a simple macroeconomic model, what relationship is described by the net export (NX) function concerning net exports and domestic national income?
In a simple macroeconomic model, what relationship is described by the net export (NX) function concerning net exports and domestic national income?
Which of the following would cause a parallel upward shift in the net export (NX) function?
Which of the following would cause a parallel upward shift in the net export (NX) function?
What could cause an upward shift and flattening of the net export (NX) function?
What could cause an upward shift and flattening of the net export (NX) function?
What is the likely impact on a country's net export (NX) function if domestic prices rise relative to foreign prices?
What is the likely impact on a country's net export (NX) function if domestic prices rise relative to foreign prices?
If domestic prices fall relative to foreign prices, what will likely happen to the net export (NX) function, assuming all other factors are held constant?
If domestic prices fall relative to foreign prices, what will likely happen to the net export (NX) function, assuming all other factors are held constant?
How does an increase in the Canadian-dollar price of foreign currency typically affect Canada's net export (NX) function?
How does an increase in the Canadian-dollar price of foreign currency typically affect Canada's net export (NX) function?
Assuming all other variables remain constant, how does a decrease in domestic national income affect the net exports (NX) function?
Assuming all other variables remain constant, how does a decrease in domestic national income affect the net exports (NX) function?
When considering the net export function alone, what kind of effect does an increase in domestic national income have on the overall net exports of a country?
When considering the net export function alone, what kind of effect does an increase in domestic national income have on the overall net exports of a country?
If a country's exports are $300 million and its imports are determined by the function IM = 0.15Y, at what level of national income (Y) will the country's net exports (NX) be equal to zero?
If a country's exports are $300 million and its imports are determined by the function IM = 0.15Y, at what level of national income (Y) will the country's net exports (NX) be equal to zero?
Suppose you are given a graph showing import, export, and net export functions. The export function is a horizontal line at $500, and the import function is IM = 0.25Y. Which equation best describes the net export function?
Suppose you are given a graph showing import, export, and net export functions. The export function is a horizontal line at $500, and the import function is IM = 0.25Y. Which equation best describes the net export function?
Exports are fixed at $400 million, and imports are a function of national income (Y), represented by IM = 0.2Y. If actual national income is $1,500, what is the value of net exports?
Exports are fixed at $400 million, and imports are a function of national income (Y), represented by IM = 0.2Y. If actual national income is $1,500, what is the value of net exports?
National income increases by $800 million. If the marginal propensity to import is 0.15, how much will imports increase?
National income increases by $800 million. If the marginal propensity to import is 0.15, how much will imports increase?
An open economy has a marginal propensity to import of 0.25. If national income increases by $4,000, by how much will imports rise?
An open economy has a marginal propensity to import of 0.25. If national income increases by $4,000, by how much will imports rise?
Exports are constant at $150. National income is $750. If net exports are zero, what is the marginal propensity to import?
Exports are constant at $150. National income is $750. If net exports are zero, what is the marginal propensity to import?
How is the autonomous component of aggregate expenditure generally affected when government and foreign trade are introduced into a simple macroeconomic model?
How is the autonomous component of aggregate expenditure generally affected when government and foreign trade are introduced into a simple macroeconomic model?
Which of the following equations represents the aggregate expenditure (AE) function for an open economy with government intervention?
Which of the following equations represents the aggregate expenditure (AE) function for an open economy with government intervention?
How is desired consumption (C) expressed once government and taxes are incorporated into a simple macro model?
How is desired consumption (C) expressed once government and taxes are incorporated into a simple macro model?
In a simple macro model incorporating government, what is the correct interpretation of the equation T = (0.25)Y?
In a simple macro model incorporating government, what is the correct interpretation of the equation T = (0.25)Y?
In a simple, closed-economy macro model, what is the relationship between the marginal propensity to consume (MPC) out of disposable income versus national income?
In a simple, closed-economy macro model, what is the relationship between the marginal propensity to consume (MPC) out of disposable income versus national income?
Consider a consumption function with a marginal propensity to consume out of disposable income of 0.85 and a net tax rate of 15%. What is the marginal propensity to consume out of national income?
Consider a consumption function with a marginal propensity to consume out of disposable income of 0.85 and a net tax rate of 15%. What is the marginal propensity to consume out of national income?
Suppose the MPC out of disposable income is 0.9, and the net tax rate is 25%. What is the approximate marginal propensity to consume out of national income?
Suppose the MPC out of disposable income is 0.9, and the net tax rate is 25%. What is the approximate marginal propensity to consume out of national income?
For an economy with a constant price level, what is the formulaic expression for the marginal propensity to spend out of national income (z), where t equals the net tax rate and m equals the marginal propensity to import?
For an economy with a constant price level, what is the formulaic expression for the marginal propensity to spend out of national income (z), where t equals the net tax rate and m equals the marginal propensity to import?
Consider an economy where C = 200 + 0.75Y, I = 350, G = 600, X = 150, and IM =0.1Y. What is the marginal propensity to spend on domestic output (z)?
Consider an economy where C = 200 + 0.75Y, I = 350, G = 600, X = 150, and IM =0.1Y. What is the marginal propensity to spend on domestic output (z)?
Within a demand-determined model, how would a reduction in government purchases impact equilibrium national income?
Within a demand-determined model, how would a reduction in government purchases impact equilibrium national income?
In a simple macro model, what impact does an increase in the net tax rate have on the aggregate expenditure (AE) curve?
In a simple macro model, what impact does an increase in the net tax rate have on the aggregate expenditure (AE) curve?
Suppose the marginal propensity to consume (MPC) is 0.75 and the marginal propensity to import is 0.1. If the net tax rate is 0.2, what is the approximate marginal propensity to spend out of national income?
Suppose the marginal propensity to consume (MPC) is 0.75 and the marginal propensity to import is 0.1. If the net tax rate is 0.2, what is the approximate marginal propensity to spend out of national income?
Within a demand-determined model, what is the impact of unplanned inventory depletion?
Within a demand-determined model, what is the impact of unplanned inventory depletion?
In an economy characterized by demand-determined output, government aims to elevate national income through fiscal policies. To do so, how should government spending (G) be adjusted?
In an economy characterized by demand-determined output, government aims to elevate national income through fiscal policies. To do so, how should government spending (G) be adjusted?
How do transfer payments made by the government affect its net tax revenues?
How do transfer payments made by the government affect its net tax revenues?
Suppose that real national income (Y) is equal to $800 and that government purchases are equal to $200. If the government's net tax revenues are equal to tY, where t is the net tax rate, then what is the value of t necessary for the government to have a balanced budget?
Suppose that real national income (Y) is equal to $800 and that government purchases are equal to $200. If the government's net tax revenues are equal to tY, where t is the net tax rate, then what is the value of t necessary for the government to have a balanced budget?
Suppose Y=$400 and the government's net tax rate is 10%. If we are told that the government has a budget surplus, then government purchases must be:
Suppose Y=$400 and the government's net tax rate is 10%. If we are told that the government has a budget surplus, then government purchases must be:
If the government's net tax rate increases, then for a given level of national income, disposable income will ________ and net tax revenue will ________.
If the government's net tax rate increases, then for a given level of national income, disposable income will ________ and net tax revenue will ________.
Consider a simple macro model with a constant price level and demand-determined output. The inclusion of government in such a model affects desired aggregate expenditure directly through ________ and indirectly through ________.
Consider a simple macro model with a constant price level and demand-determined output. The inclusion of government in such a model affects desired aggregate expenditure directly through ________ and indirectly through ________.
In a simple macro model, it is generally assumed that a country's exports:
In a simple macro model, it is generally assumed that a country's exports:
When determining the AE function for an open economy with government, it is generally assumed that as real national income:
When determining the AE function for an open economy with government, it is generally assumed that as real national income:
In a simple macro model, the net export (NX) function indicates a ________ relationship between ________ and domestic national income.
In a simple macro model, the net export (NX) function indicates a ________ relationship between ________ and domestic national income.
A movement along the net export (NX) function can be caused by a change in:
A movement along the net export (NX) function can be caused by a change in:
A parallel upward shift in the net export (NX) function can be caused by:
A parallel upward shift in the net export (NX) function can be caused by:
Flashcards
Transfer payments effect
Transfer payments effect
Government payments to individuals influence spending through the consumption patterns of households.
OAS Expenditures
OAS Expenditures
Government expenditures like Old Age Security aren't direct demands on total output, classifying them as transfer payments.
G and T Components
G and T Components
These components include all levels of government: federal, provincial, and municipal.
Budget surplus
Budget surplus
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Budget Deficit
Budget Deficit
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Increased net tax rate
Increased net tax rate
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Government impact on AE
Government impact on AE
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Exports vs Imports
Exports vs Imports
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National Income Increase
National Income Increase
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Net export function
Net export function
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NX function movement
NX function movement
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Upward shift in NX
Upward shift in NX
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Downward shift in NX
Downward shift in NX
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Downward steeper NX shift
Downward steeper NX shift
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Upward flatter NX shift
Upward flatter NX shift
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NX function crosses X axis
NX function crosses X axis
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Rising domestic prices
Rising domestic prices
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Falling domestic prices
Falling domestic prices
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Rising CAD price
Rising CAD price
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Falling CAD Price
Falling CAD Price
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Decreased domestic income
Decreased domestic income
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Increase foreign income
Increase foreign income
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Increase domestic income
Increase domestic income
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National income rise imports
National income rise imports
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Added trade/gov to AE
Added trade/gov to AE
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AE definition
AE definition
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Consumption function
Consumption function
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T = (0.2)Y
T = (0.2)Y
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YD = (0.75)Y?
YD = (0.75)Y?
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MPC vs Income
MPC vs Income
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Marginal propensity to spend
Marginal propensity to spend
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Vertical Intercept
Vertical Intercept
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Aggregate equation
Aggregate equation
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Lower net tax rate
Lower net tax rate
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Higher import propensity
Higher import propensity
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AE curve rotates AE1 to AE0
AE curve rotates AE1 to AE0
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AE0 to AE1 Implies
AE0 to AE1 Implies
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Simple multiplier
Simple multiplier
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Fiscal policy
Fiscal policy
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Diagram 1 refer
Diagram 1 refer
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Diagram 2 refer
Diagram 2 refer
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Constant price level
Constant price level
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Demand determined output
Demand determined output
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Simple macro model
Simple macro model
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Increase full-employment
Increase full-employment
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Increase taxes
Increase taxes
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Study Notes
- Government transfer payments to individuals affect desired aggregate expenditure through the consumption function.
Government Expenditures
- Government expenditures like Old Age Security, employment insurance, and welfare benefits are transfer payments.
- Transfer payments don't directly demand Canada's total output and are not included in the government component (G) of aggregate expenditure.
National Income Accounts
- The G (government purchases) and T (net taxes) components in national-income accounts include all levels of government.
Budget Surplus
- A budget surplus refers to net tax revenues minus government purchases.
Government Budget Balance
- Government budget deficit exists when G = 300 and net tax revenue is equal to 0.14Y, and Y = 2000, results in a budget deficit of 20.
- The government budget is balanced when G = 300 and net tax revenue = 0.12Y, and Y equals 2500.
- Government saving is negative for all values of Y below 2000 when G = 400 and net tax revenue is 20% of national income (Y).
- When G = 600 and net tax revenue is 10% of Y, the government budget is balanced when Y equals 6000.
- When G = 300 and net tax revenue is 0.3Y, the government budget is in surplus only when Y is greater than 1000.
- Transfer payments made by the government directly affect its net tax revenues.
- If real national income (Y) is 800 and government purchases are 200, a net tax rate (t) of 25% is necessary for a balanced budget (T = tY).
- If Y = 400 and the government's net tax rate is 10%, government purchases must be less than 40 for the government to have a budget surplus.
- If the government's net tax rate increases, disposable income decreases, and net tax revenue increases.
Macro Model with Government
- Government affects desired aggregate expenditure directly through government purchases and indirectly through its effect on disposable income.
Open Economy
- In a simple macro model, exports are autonomous, while imports are induced which means influenced by the level of national income.
- For an open economy with government, as real national income increases, net exports decrease.
- The net export (NX) function indicates a negative relationship between net exports and domestic national income.
- A movement along the net export (NX) function can be caused by a change in domestic national income.
- A parallel upward shift in the net export (NX) function can be caused by an increase in foreign national income.
- A parallel downward shift in the net export (NX) function can be caused by a decrease in foreign national income.
- An upward shift and flattening of the net export (NX) function can be caused by a decrease in domestic prices relative to foreign prices, or an increase in the Canadian-dollar price of foreign currency.
- A downward shift and steepening of the net export (NX) function can be caused by an increase in domestic prices relative to foreign prices, or a decrease in the Canadian-dollar price of foreign currency.
- The net export (NX) function crosses the horizontal axis where the export (X) and import (IM) curves intersect.
- A rise in domestic prices relative to foreign prices causes the net export (NX) function to shift downward and become steeper.
- A fall in domestic prices relative to foreign prices causes the net export (NX) function to shift upward and become flatter.
- A rise in the Canadian-dollar price of foreign currency causes Canada's net export (NX) function to shift upward and become flatter.
- A fall in the Canadian-dollar price of foreign currency causes Canada's net export (NX) function to shift downward and become steeper.
- A decrease in domestic national income will cause a movement to the left along the net exports (NX) function.
- An increase in foreign income is assumed to cause the net export (NX) function to shift parallel upward.
- An increase in domestic national income causes movement to the right along the net export function.
- With exports at $200 and imports given by IM = 0.2Y, net exports equal zero when national income is $1000.
- If actual national income in this economy is equal to $1000, then net exports are equal to $250
- The function for desired imports for this economy can be expressed as IM = 0.2(Y)
- The net export function for this economy can be expressed as NX = 450 - 0.2(Y)
- If actual national income is equal to $2000, then imports are equal to $400
- The correct values for the level of net exports (a, b, c, and d) at each level of national income are a = $150, b = $50, c = -$50, d = -$150
- The marginal propensity to import is 0.10
- The net export function can be expressed as NX = 350 - 0.1Y
- On a graph of the net export function for this economy, at $3500 of Y ,the NX function will intersect the horizontal axis
- If actual national income increases by $600, the level of imports will rise by $60.
- In an open economy that has a marginal propensity to import equal to 0.30, if national income rises by $2500, imports will rise by $750.
- With exports (X)=100, Y=500, net exports would be equal to zero if the marginal propensity to import were 20%.
- Adding government and foreign trade to the AE function causes the autonomous component of AE to increase.
- The AE function for an open economy with government can be written as AE = C + I + G + (X-IM).
- Once government and taxes are included in the model, desired consumption can be expressed as C = a + MPC(1 - t)Y, where a = autonomous consumption, t = net tax rate, Y = national income, YD = disposable income, and MPC = marginal propensity to consume.
- In a simple macro model with government, If national income increases by $1.00, then net tax revenue increases by $0.20 given the equation T = (0.2)Y.
- In a simple macro model with government, If national income increases by $1.00, then disposable income increases by $0.75 and net tax revenue increases by $0.25 given the equation: YD = (0.75)Y
- In a simple macro model with government and foreign trade, the marginal propensity to consume out of disposable income is MPC whereas the marginal propensity to consume out of national income is MPC(1 - t)
- Given a marginal propensity to consume out of disposable income of 0.9 and a net tax rate of 10% of national income, the marginal propensity to consume out of national income is 0.81.
- Given a marginal propensity to consume out of disposable income of 0.8 and a net tax rate of 20% of national income, the marginal propensity to consume out of national income is 0.64.
- Given a marginal propensity to consume out of disposable income of 0.7 and a net tax rate of 30% of national income, the marginal propensity to consume out of national income is 0.49.
- The marginal propensity to spend out of national income, z, can be expressed as z = MPC(1 - t) - m (where t = net tax rate and m = marginal propensity to import).
- The marginal propensity to spend on national income, z, is 0.760 given: C = 150 + 0.84Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y.
- Total autonomous spending in this model is 1120.0 given: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y.
- The vertical intercept of the AE function is 1120.0 given: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y.
- A national income of 2400 results in desired aggregate expenditure of 2896 given: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y.
- The vertical intercept of the AE function is 560.0, given: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y.
- A national income of 1200 results in desired aggregate expenditure of 1004 given: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y.
- The marginal propensity to spend on national income, z, is 0.37 given: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y.
- Autonomous expenditures in this model are 1380 given: C = 150 + 0.8Yd, Yd = Y-T, I = 400, G = 700, T =.2Y, X = 130, and IM = 0.14Y.
- The marginal propensity to spend on national income in this model is 0.50 given: C = 150 + 0.8Yd, Yd = Y -T, I = 400, G = 700, T =.2Y, X = 130, and IM = 0.14Y.
- The level of autonomous consumption is $75 given: marginal propensity to consume (mpc) = 0.75, net tax rate (t) = 0.20, no foreign trade, fixed price level.
- Total autonomous expenditure is $250 given: marginal propensity to consume (mpc) = 0.75, net tax rate (t) = 0.20, no foreign trade, fixed price level.
- The consumption function for this economy is C = 75 + (0.75)YD, given: marginal propensity to consume (mpc) = 0.75, net tax rate (t) = 0.20, no foreign trade, fixed price level.
- The aggregate expenditure function for this economy is AE = 250 + (0.6)Y, given: marginal propensity to consume (mpc) = 0.75, net tax rate (t) = 0.20, no foreign trade, fixed price level.
- The marginal propensity to spend (z) in this economy is 0.60 given: marginal propensity to consume (mpc) = 0.75, net tax rate (t) = 0.20, no foreign trade, fixed price level.
- The rotation from AE0 to AE1 could be caused by a lower net tax rate.
- The rotation from AE1 to AE0 could be caused by an increase in the marginal propensity to import.
- Autonomous expenditures remain constant as the AE curve rotates from AE1 to AE0, and equilibrium national income decreases.
- An increase in the net tax rate causes the AE curve to rotate downward.
- A decrease in the net tax rate causes the AE curve to rotate upward.
- If the marginal propensity to consume out of disposable income is 0.6 and the marginal propensity to import is 0.14, and if the net tax rate is 0.1, then the marginal propensity to spend in this economy is 0.40.
- Equilibrium national income is 5750 given: C = 150 + 0.84Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y.
- Desired consumption expenditure at equilibrium national income is 4980.00 given: C = 150 + 0.84Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y.
- The trade balance at equilibrium national income is a deficit of 330.0 given: C = 150 + 0.84Y, I = 400, G = 700, T = 0, X = 130, IM = 0.08Y.
- Equilibrium national income is 5000 when G is equal to 520 given: C = 150 + 0.84Y, I = 400, X = 130, IM = 0.08Y, T = 0.
- When national income falls short of desired aggregate expenditures, unplanned inventory depletion will induce firms to raise the rate of output production.
- Equilibrium national income is 4307.70 given: C = 120 + 0.86Y, I = 300, G = 520, T = 0, X = 180, IM = 0.12Y.
- Equilibrium national income is 888.89 given: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y.
- The trade balance at equilibrium national income is a surplus of 36.67 given: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y.
- Equilibrium national income in this model is 2760 given: C = 150 + 0.8Yd, Yd = Y-T, I = 400, G = 700, T = 0.2Y, X = 130, and IM = 0.14Y.
- Equilibrium national income is 3833.33 given: C = 150 + 0.9Yd, Yd= 0.8Y, I = 400, G = 700, T = (0.2)Y, X = 130, IM = (0.08)Y.
- The equilibrium national income in this economy is $625 given: marginal propensity to consume (mpc) = 0.75, net tax rate (t) = 0.20, no foreign trade, fixed price level.
- In an open economy with government and demand-determined output, a decrease in the desired level of saving at all levels of income could be caused by an increase in the equilibrium level of national income.
- In an open economy with government and demand-determined output, a decrease in desired consumption at all levels of income could be caused by a decrease in the equilibrium level of national income.
- In an open economy with government and demand-determined output in the short run, a specific "target" level of national income can be achieved by changes in G, T, or both.
- $2 billion purchase of military helicopters implies the AE function will shift up parallel to itself and equilibrium national income will rise.
- A rise by three percentage points in the federal income-tax rate implies that the AE function will rotate downward (become flatter) and national income will fall.
- Business community investment plans being axed implies that the AE function will shift down parallel to itself and equilibrium national income will fall.
- Canadian exporters hurt by foreign recession implies that the AE function will shift down parallel to itself and equilibrium national income will fall.
- Canadians developing a greater taste for foreign vacations implies that the AE function will rotate downward (become flatter) and national income will fall.
- Government following through on election promise and cuts income-tax rate by 5 percentage points implies that the AE function will rotate upward (become steeper) and equilibrium national income will rise.
- China signing deal to buy more Canadian wheat implies that the AE function will shift up parallel to itself and equilibrium national income will rise.
- Suppose the level of exports decreases unexpectedly by $6 billion, if the government wants to restore the initial equilibrium level of output it could increase its purchases by $6 billion.
- The value of the multiplier in this economy is 2.5 given: marginal propensity to consume (mpc) = 0.75, net tax rate (t) = 0.20, no foreign trade, fixed price level.
- A decrease in the value of the simple multiplier can be caused by an increase in the marginal propensity to save.
- An increase in the value of the simple multiplier can be caused by a decrease in the net tax rate.
- In a macro model where the marginal propensity to consume out of disposable income is 0.8, the net tax rate is 0.25, and the marginal propensity to import is 0.12, the simple multiplier will be 1.923.
- The value of the simple multiplier in this model is 1.59 given: C = 60 + 0.43Y, I = 150, G = 260, T = 0, X = 90, IM = 0.06Y.
- If the marginal propensity to spend out of national income is 0.4, then a $0.6 billion decrease in government purchases will cause equilibrium national income to decrease by approximately $1.00 billion.
- A decrease in the net tax rate causes no change in autonomous spending and a rise in the simple multiplier.
- An increase in the net tax rate lowers the marginal propensity to spend and thus lowers the simple multiplier.
- Suppose aggregate output is demand determined. If the marginal propensity to spend is 0.5, and the MPC is 0.7, a $1 billion reduction in government purchases will cause equilibrium national income to decrease by $2.00 billion.
- In a simple macro model with government and demand-determined output, to raise equilibrium national income by $100 billion, G must be raised by $100 billion divided by the simple multiplier.
- If the government wants to reduce equilibrium national income by $20 billion, G must be lowered by $20 billion divided by the simple multiplier.
- The rotation from AE0 to AE1 implies that the marginal propensity to spend increases and the value of the simple multiplier increases.
- A rise in the net tax rate lowers the simple multiplier and lowers equilibrium national income.
- The simple multiplier is equal to 1/(1 - (MPC(1 - t)- m )).
- The simple multiplier without government and foreign trade in this economy is 2.5 and the simple multiplier with government and foreign trade in this economy is 1.33 given: Marginal propensity to consume out of disposable income = 0.6, Marginal propensity to consume out of national income = 0.48, Marginal propensity to import = 0.23.
- If the marginal propensity to consume out of disposable income (MPC) is equal to the marginal propensity to spend out of national income (z), then there is no effect on the simple multiplier from imports or tax rates.
- Fiscal policy involves the government's use of expenditures and taxation to affect economic outcomes.
- Diagram 1 illustrates an economy that is experiencing a(n) inflationary gap. The goal of stabilization policy would be to reduce national income until it is equal to potential GDP.
- Diagram 2 illustrates an economy that is experiencing a(n) recessionary gap. The goal of stabilization policy would be to increase national income until it is equal to potential GDP.
- Which of the following fiscal policy measures could the government implement to return national income to the full-employment level of GDP (potential output, Y*)? reduce government spending
- Which of the following fiscal policy measures could the government implement to return national income to the full-employment level of GDP (potential output, Y*)? increase government spending
- If the price level is taken as given in a simple macro model with demand-determined output, it is implicitly being assumed that producers can provide whatever output is demanded of them without requiring higher prices to offset any higher costs.
- One situation which may justify the assumption that output is assumed to be demand-determined is when the economy is operating with some unemployed resources.
- We would expect real national income to be "demand determined" when there is large-scale unemployment of resources in the economy, firms are price setters and firms have excess capacity.
- The simple macro model that is considered in Chapters 21 and 22 of the textbook is characterized by a given (constant) price level, and national income that is solely demand determined.
- In the simple macro model that is considered in Chapters 21 and 22 of the textbook, there are no supply-side influences on national income.
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