İKTİSADA GİRİŞ II - Deneme Sınavı - 5

Tax multiplier = - ( 3 - 1 ) = - 2

Correct answer is E.

Tax multiplier is the coefficient that determines the effect of a change in taxes on the level of income.

Fiscal policy is a discipline that has gained importance and grown fast since 1930s. In fact, the discussions stemming from 1929 Great Depression are deemed as the origin of modern fiscal policy. In 1950s and 1960s, fiscal policy found an opportunity to spread widely and to develop more.

Contractionary fiscal policy is the fiscal policy that aims to decrease aggregate expenditures by reducing government spending and/or increasing taxes.

The idea of government’s intervention to economy started with Mercantilists in the 16th century. Mercantilism denies and replaces middle-age insights with more rational principles. These principles were very efficient in terms of economic configuration of governments between the 16th and 18th centuries.

Transfer expenditures can be divided into four groups.

Economic Transfers: Transfers made by the government in order to support the invest- ments of Public Economic Enterprises.

Financial Transfers: Transfers to special budget institutions and local authorities (universities, provincial administrations and municipalities etc.) made by government.

Social Transfers: Transfers made by the state with the social purposes (financial aids for retirement funds and association,student grants etc.).

Debt Payments: The expenses not paid in related fiscal year but in following years are assumed as transfer payments. Theseare the interest payments the government pays for domestic and international debts, amortization of debt, expenses of previous years not paid in due date as well as debts of previous years.

Economic Transfers: Transfers made by the government in order to support the invest- ments of Public Economic Enterprises.

Debt Payments: The expenses not paid in related fiscal year but in following years are assumed as transfer payments. Theseare the interest payments the government pays for domestic and international debts, amortization of debt, expenses of previous years not paid in due date as well as debts of previous years.

Transfer expenditures can be divided into four groups. • Economic Transfers: Transfers made by the government in order to support the investments of Public Economic Enterprises. • Financial Transfers: Transfers to special budget institutions and local authorities (universities, provincial administrations and municipalities etc.) made by government. • Social Transfers: Transfers made by the state with the social purposes (financial aids for retirement funds and association, student grants etc.). • Debt Payments: The expenses not paid in related fiscal year but in following years are assumed as transfer payments. These are the interest payments the government pays for domestic and international debts, amortization of debt, expenses of previous years not paid in due date as well as debts of previous years.

Tax multiplier is the coefficient that determines the effect of a change in taxes on the level of income.

Taxes are monetary amounts which the government and public institutions having taxation authority take outrightly from natural and legal persons in order to cover the public expenses based on sovereign rights and laws.

Automatic stabilizers are the revenue and expenditure items in the government budget that automatically change to provide stability in the economy.

Transfer expenditures can be divided into four groups.

Economic Transfers: Transfers made by the government in order to support the invest- ments of Public Economic Enterprises.

Financial Transfers: Transfers to special budget institutions and local authorities (universities, provincial administrations and municipalities etc.) made by government.

Social Transfers: Transfers made by the state with the social purposes (financial aids for retirement funds and association,student grants etc.).

Debt Payments: The expenses not paid in related fiscal year but in following years are assumed as transfer payments. Theseare the interest payments the government pays for domestic and international debts, amortization of debt, expenses of previous years not paid in due date as well as debts of previous years.

For the government to shift aggregate expenditure function upward, there are three ways: First, the government may decrease taxes that will cause income level to raise by shifting consumption function upward. Second, by increasing public expenditures the government may ensure total aggregate expenditure function to move upward. Third, in order to make the investments to be more profitable, the government may encourage more investments by providing more tax discounts.

If the value of tax multiplier is known, the effect of tax changes on income can easily be calculated.

Autonomous tax is the part of total taxes that is independent of income.

Views related to tasks which government should undertake in an economy have been varying noticeably during history. The idea of government’s intervention to economy started with Mercantilists in the 16th century. Mercantilism denies and replaces middle-age insights with more rational principles. These principles were very efficient in terms of economic configuration of governments between the 16th and 18th centuries.

Y – T = C + S + IM

Y = C + S + T + IM

This last equation demonstrates that the total income of the country is being used in four different ways. This income is partly transferred to government as taxes (T), partly used to purchase the domestically produced goods and services, in other words, consumed (C), partly spent for imported goods and services (IM) and partly used for savings (S).

Transfer expenditures can be divided into four groups.

• Economic Transfers: Transfers made by the government in order to support the investments of Public Economic Enterprises.

• Financial Transfers: Transfers to special budget institutions and local authorities (universities, provincial administrations and municipalities etc.) made by government.

• Social Transfers: Transfers made by the state with the social purposes (financial aids for retirement funds and association, student grants etc.).

• Debt Payments: The expenses not paid in related fiscal year but in following years are assumed as transfer payments. These are the interest payments the government pays for domestic and international debts, amortization of debt, expenses of previous years not paid in due date as well as debts of previous years.