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Role of Government Role of Government

Role of Government - PowerPoint Presentation

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Role of Government - PPT Presentation

Fiscal Policy Government uses its powers of expenditure taxation and borrowing to alter the size of the circular flow of income in the economy to bring about greater consumer demand more employment inflationary restraint and other economic goals ID: 329480

money government spending tax government money tax spending economy policy leakages fiscal income injections demand economic revenue role expenditure

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Slide1

Role of GovernmentSlide2

Fiscal Policy

Government uses its powers of expenditure, taxation, and borrowing to alter the size of the circular flow of income in the economy to bring about greater consumer demand, more employment, inflationary restraint and other economic goals.Slide3

Leakages and Injections

Circular flow of income

Sees the GDP as a total of all money payments in the economy

Leakages – any uses of income that cause money to be taken out of the income-expenditure stream of the economy (e.g. less money to be spent)

Taxes

Savings

ImportsSlide4

Leakages and Injections (cont’d)

Injection – any expenditure that causes money to be put into the income-expenditure stream (e.g. MORE money to be spent)

Government Spending

Investment Spending

ExportsSlide5

What does this mean?

The relationship between the leakages and the injections determine whether overall demand is growing or shrinking.

If sum OF LEAKAGES is greater than sum of INJECTIONS – demand will shrink.

Equilibrium – when they are equal amounts leakages and injectionsSlide6

Discretionary fiscal policy

Deliberate government action to stabilize the economy in the form of taxation or spending policies

Expansionary

fiscal policy

Government policies to increase aggregate demand through tax cuts, increased spending, or both.

Contractionary

fiscal policy

Govt policies to decrease aggregate demand through tax increases and/or decreased spendingSlide7

Tools of Fiscal Policy

Changes in spending

Increase general spending ( to stimulate economy)

Infrastructure programs

Changing in taxation

Change the amount of tax collected to stimulate economic activity, or restrain economic activity

Automatic stabilizers

Things that already exist and are built into the economy

EI/welfare – examples of automatic stabilizers Slide8

Government Budget Options

Deficit budget

Govt

spends more than it collects in tax revenue. It must borrow the money to cover the shortfall.

Surplus budget

When the government collects more tax revenue than it spends. There is money left over.

Balanced budget

When the government spends an amount equal to what it has collected in tax revenueSlide9

What role does government play?

During the Great Depression, Canada thought the market would just “correct itself”

After 3 years, it didn’t so they had to try something else

Government also didn’t have any responsibility to the people to help them (because there was no formal social welfare system)

Canada became a welfare state after the 1950s

The

govt

tries to help its citizens economicallySlide10

Role of Government

Very different opinions on role of government (Liberal/Left vs. Conservative/Right)

Complete “Matter of Opinion on p. 288-289 (#1)

Collect tax dollars from citizens/residents and spend money on various programs and services

Transfer payments from federal to provincial government

Most of the tax revenue is spent on 3 pillars:

Health

Social Services

EducationSlide11
Slide12

Assignment

How

does the government use taxing and spending decisions (fiscal policy) to promote price stability, full employment, and economic growth

?

Predict the consequences of government debt on the individual and the economy.

How do you think the decision of government to spend more or less money on health and education would affect your standard of living and quality of life?

A matter of opinion – p. 288/289 #1