Ch.7 Fiscal Policy Flashcards
Gov’s approach towards
Spending & Taxation
Fiscal Policy
Balanced Budget
when NTR = __
NTR = Gov spending
Which Source of
Gov Revenues incl.
- Crown Corp Income
- other Gov Investment
- Bank of Canada earnings
Nontax Revenues
In Gov Expenses
- Transfers to Persons &
- Public Debt Charges (interests)
are categorized as
Transfer Payments
In Gov Expenses
- Spending Grants to Other Levels of Gov &
- Direct Program Spending
are categorized as
Gov Spending
Which Source of
Gov Expenses incl.
- Post-2nd Edu
- Health
- Social Assist.
- Equal. Pmt. to Provinces
- Aid Dev. Nations
- Dues to Int’l Org
Spending Grants to Other Levels of Gov
Which Source of
Gov Expenses incl.
- Spending on Depts of Gov
- Crown Corp
Direct Program Spending
Net Tax Revenue
NTR =
NTR = Tax Rev - Transfer Pmts
Budget Balance = ?
relationship btw NTR / G / Budget Line
= NTR - G
= (Tax Rev - TP) - G
3 Factors which affect
Gov Budget
(Budget=NTR-G)
1) NTR affected by
GDP (affect Tax Rev & TP)
& Tax Rate
2) Gov Spending
Gov Spending ↑
⇒ Budget Line
BL ↑/↓?
Tax ↑
⇒ Budget Line
BL ↑/↓?
Gov Spending ↑ ⇒ BL↓
Tax ↑ ⇒ BL ↑
3 Schools of
Fiscal Policy
① Countercyclical FP
Keynes：Gov救市
G↑ T↓ in Recession
G↓ T↑ in Inflation
⇒ AD → LAS
② Balanced-Budget FP
Gov：有$多花，沒$少花
Automatic Stabilizer: like ①
Self-Adjustment ⇒ AS → LAS
∵ wage↑ in Inflation
& wage↓ in Recession
③ Cyclical Balanced Budget FP
Balance budget over Biz Cycle
⇒Accept Cyclical Deficit/Surplus
Avoid Structural Deficit/Surplus
Tax Law & Gov Spending
set out to
↓ G @Inflation &
↑ G @Recession
Automatic Stabilizers
4 Shortcomings of
Countercyclical Fiscal Policy
1) Delay (slow gov)
2) Inflationary Bias
$↑ when rising
3) Crowd-out Effect
排擠效應 Int Rate↑⇒I ↓
4) Budget Deficit↑⇒Debt↑
G↑ T↓ when rising
時間、通膨、利率、國債↑
Gov pushes economy
in the same direction in
Recession/Inflation
Procyclical
