By Frank H. Hahn
Read Online or Download Aspects of Monetary Theory: 352. Sitzung am 5. Oktober 1988 in Düsseldorf PDF
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Additional resources for Aspects of Monetary Theory: 352. Sitzung am 5. Oktober 1988 in Düsseldorf
Assuming households use what is left of their income to purchase consumption or investment, or to purchase the newly issued government debt, income accounting at the household level looks like: C + [I + B] = [Y − T ] . 8) Disposable income, income net of taxes collected by the government, is defined as Y − T . This income accounting equation simply says that income net of taxes (Y − T ) is either consumed C or saved by households. Households save when they purchase new investment goods I or purchase bonds from the government B.
Also on the figure is a “trend” line, the dotted line, which represents the path for log real GDP if log real GDP had increased by a fixed amount in each year over history. Note that if trend log real GDP increases by g units in each period, then the growth rate of trend real GDP increases by 100 ∗ g percent in each period. To see this, denote yt∗ as trend real GDP. When ∗ ln yt+1 − ln yt∗ = g , this implies: ∗ − ln yt∗ = ln g = ln yt+1 ∗ yt+1 yt∗ = ln 1 + ≈ ∗ − yt∗ yt+1 yt∗ ∗ yt+1 − yt∗ , yt∗ ∗ − yt∗ /yt∗ is the rate of growth of trend GDP.
8) Disposable income, income net of taxes collected by the government, is defined as Y − T . This income accounting equation simply says that income net of taxes (Y − T ) is either consumed C or saved by households. Households save when they purchase new investment goods I or purchase bonds from the government B. Government bonds are a form of saving by households since the government is committing to repay the bonds, with interest, at some point in the future. In this example, we have assumed, for simplicity, that all new debt that the government issues B is bought by households in the US.