Chp29 - Fiscal Policy Flashcards
1
Q
Federal Budget
A
- the annual statement of the outlays and revenues of the Gov. of Canada, together with the laws and regulations that approve and support those outlays and revenues, make up the federal budget
2
Q
Fiscal Policy
A
- the use of the Federal Budget to achieve macroeconomic objectives
- full employment
- long-term economic growth
- price level stability
3
Q
Revenues
A
- Personal Income Taxes (Largest)
- Corporate Income Taxes (Smallest)
- Indirect and other Taxes
- Investment Income
4
Q
Outlays
A
- Transfer Payments
- payments to individuals, businesses, levels of government, rest of world
- social programs, aid, grants, subsidies
- Expenditures on Goods and Services
- Debt Interest
5
Q
Budget Balance
A
- Surplus: revenues>outlays
- Deficit: revenues<outlays
- Balanced: revenues=outlays
6
Q
Government Debt
A
- total amount of government borrowing
= sum of past deficits - sum of past surpluses
7
Q
Supply-Siders
A
- believe that taxes on personal/corporate income have a large effect on RGDP and Employment
8
Q
Income Tax Effects on the Labour Market
A
- tax on income influences PGDP and aggregate supply by changing the full-employment quantity of labour
- Income Tax has no effect on the demand for labour
- Income tax weakens incentive to work and thus reduces supply of labour
9
Q
Tax Wedge
A
- The gap created between the before-tax and after=tax wage rates is called the tax wedge
- Workers look at after-tax wage rate to see how much labour to supply
- Shifts to LS curve leftward to LS + tax
- Will slide the Labour supply/demand equilibrium up the LD curve
- Taxes on Consumption Expenditure add to the wedge
10
Q
Taxes and Incentive to Save/Invest
A
- Income tax weakens the incentive to save and drives a wedge between the after-tax interest rate earned by savers and the interest rate paid by firms
- Higher inflation rate = higher true tax rate in interest income
- Income Tax has no effect on demand for loanable funds
- Tax on Income weakens incentive to save and decreases the supply of loanable funds
- shifts SLF curve leftward to SLF + tax
11
Q
Laffer Curve
A
- Curve that shows that a higher tax rate does not always bring about greater revenue
12
Q
Fiscal Stimulus
A
- the use of fiscal policy to increase production and employment
- Automatic Fiscal Policy: action that is triggered by state of the economy and not by government action
- Discretionary Fiscal Policy: action initiated by state
13
Q
Tax Revenues
A
- Change automatically in response to the state of the economy
- income varies with RGDP therefore tax revenue varies with RGDP
14
Q
Transfer Payments
A
- Change automatically in response to the state of the economy
- economic expansion = lower unemployment = lower transfer payments (and vice versa)
15
Q
Structural Surplus & Deficit
A
- the budget balance that would occur at full employment
