Unit 4: The govenrment and Fiscal Policy

What is fiscal policy?

• Policy controlling interest rates

• Government's spending and taxing policies

• Export and import policies

• Monetary policy of the Central Bank

Net taxes (T) are

• Income after taxes

• Total taxes

• Taxes paid minus transfer payments

• Total spending of government

Disposable income (Yd) is

• Y+T

• Y-T

• T-Y

• Y+G

Planned aggregate expenditure (AE) is

• C+I

• C+G

• C+I+G

• C+S+G

Budget balnce equals:

• G-T

• T-G

• G+T

• T+G

If T-G > 0, the government is running a:

• Balanced budget

• Deficit

• Surplus

• Crisis

If T - G <0, the government is running a

• Deficit

• Surplus

• Balanced budget

• Structual budget

The consumption function with taxes is:

• C = a + bY

• • C = a + b(Y − T)

• C = a + bT

• C = a + bY + T

The investment (I) is assumed to be:

• A function of taxes

• Constant

• Increasing over time

• Related to inflation

Government purchases (G) are:

• Dependent on income

• Constant (exogenous)

• A function of taxes

• Increasing with exports