Chapter 7

Question 1

What is Government Purchases (G)?

Answer 1

It’s combined purchases of federal, provincial and municipal governments. It’s the “provision” of goods and services (general government, health, education, public safety, and transportation) EXCLUDING transfer payments

Question 2

What is “Transfer Payments”

Answer 2

Payments to the elderly, payments to the unemployed, welfare payments (Social Assistance), subsides, and grants

Question 3

Governmenr collect taxes and makes transfer payments. What is the formula for Net Taxes?
(T)

Answer 3

Net Taxes(T) = Total Tax - Transfer Payments

Question 4

What does AE stand for?

Answer 4

Aggregrate Expenditure

Question 5

What IS AE? (Aggregrate Expenditure)

Answer 5

It’s the Total Amount of Spending in Economics during a specific period.

Question 6

Formula of AE?

Answer 6

AE = C + I + G
CONSUMPTION
INVESTMENT
GOVERNMENT SPENDING
AND NET EXPORTS (Export minus Imports)

Question 7

Formula for Expenditure?

Answer 7

C = C0 + mpc (Y-T)

Question 8

What is YD (Disposable Income) Formula

Answer 8

Y - T

Question 9

Formula for Investment Expenditure

Answer 9

I = I (With hat -)

Question 10

Formula for Government Expenditure?

Answer 10

G= G (With hat -)

Question 11

Formula for Taxes?

Answer 11

T = T (With hat)

Question 12

Formula for Equilibrium Output (Y)

Answer 12

Y = AE = C + I + G

Question 13

Equilibrium ____ occurs where desired aggregrate expendenditure equals actual national income?

Answer 13

Y = AE = C + I + G

Question 14

G and T are ____

Answer 14

Exogenous, they are NOT unrelated to the current level of Y

Question 15

What do G & T describe?

Answer 15

They describe Fiscal Policy

Question 16

What is Fiscal Policy?

Answer 16

Choices of taxes and government spending made by the government

Question 17

Budget Balance is what letters?

Answer 17

T - G
(Total Government Revenue and Total Government Expenditure)

Question 18

What is Budget Surplus?

Answer 18

When Net Revenues exceed purchases

Question 19

What is Budget Deficit?

Answer 19

When Purchases exceed purchases

Question 20

What is Balanced Budget?

Answer 20

When the two amounts are equal

Question 21

What changes in Fiscal Policy?

Answer 21

Changes in T, G or Both

Question 22

What changes in Monetary Policy?

Answer 22

Changes in Interest Rate

Question 23

Stabilization Policy in Fiscal Policy?

Answer 23

It’s any policy designed to reduce the economy’s cyclical fluctuations and thereby stabilize national income

Question 24

Formula for Supply of Goods and Services (GDP) = Desired AE

Answer 24

Y = AE = C + I + G

Question 25

Formula for Leakages = Injection

Answer 25

S + T = I + T

Question 26

Do Taxes affect the economy

Answer 26

YES

Question 27

Formulas for C

Answer 27

C = C0 + mpc(YD) C = C0 + mpc(Y-T)

Question 28

With Taxation, ____(Disposable income or net income after tax) is less than ___ (Gross Income or Income before Tax)

Answer 28

Y < YD

Question 29

Equilibrium Condition Formula:

Answer 29

Y = AE = C + I + G

Question 30

When does equilibrium Y occur?

Answer 30

It occurs where desired aggregate expenditure (AE) equals actual national income (Y)

Question 31

Formula for Consumption Expenditure

Answer 31

C = C + mpc (Y-T)

Question 32

Investment Expenditure

Answer 32

I = I (WITH HAT)

Question 33

Government Expenditure Formula

Answer 33

G = G WITH HAT

Question 34

Taxes Formula

Answer 34

T = T with HAT