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Evaluate the effects on income and the rate of interest of a decision to meet the government's budget constraint by way of (a) an increase in taxes (b) a rise in monetary supply (c) increased bonds sales.
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1. Evaluate the effects on income and the rate of interest of a decision to meet the government's budget constraint by way of (a) an increase in taxes (b) a rise in monetary supply (c) increased bonds sales Lecture notes 06/11/03 SMG 206... Plan: Intro. Budget Constraint: - Simply means that all g'ment expenditure must be financed; it is not a restraint on spending, but a recognition of need always to meet the financing requirement. Diagram of Budget constraint, can be covered in 3 ways. Effects on Y & r of ? taxes Effects on Y & r of ? monetary supply Effects on Y & r of ? Bond sales Conclusion (including evaluation of effective methods) G ?, IS shifts out. G'ment outlay curve moves down Income and r increase Gap between G & T represents Budget deficit which must be covered. Three ways to cover this budget deficit: a) Increase taxes ? Taxes. Equal to ? in g'ment expenditure. This policy is the least...
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