Public Policy - GDP2.docx

Gross Domestic Product: Nations total production of goods and services in monetary terms Comsunption + Investment + Government Spending + NX (Net Exports (Exports – Imports)) = GDP It is a proxy for national income – circular flow of money Almost all governments revenue is taken from private econ...

Gross Domestic Product: Nations total production of goods and services in monetary terms Comsunption + Investment + Government Spending + NX (Net Exports (Exports – Imports)) = GDP It is a proxy for national income – circular flow of money Almost all governments revenue is taken from private economy Especially at the federal level Effective tax rates: Tax people pay in practice Nominal tax rates: How much people should pay to the government given a certain income level Effective tax rates are almost always lower than nominal rates Deduction: Takes tax rate to 0 Renuables: Takes tax rate above that Where does the money come from Over time, spending goes up Why does spending increase There are automatic spending for welfare entitlements For social security and medicare especially Costs of Medicare are increasing as well There are also automatic stabilizers and countercyclical spending Economic stimulus American rescue plan Basically Debt doesn’t increase linearly or exponentially Due to counter cyclical spending: Spending that is opposite of the business cycle