Macro - Eco please help me. Many thanks!!!

[tomtom2312]

In fiscal balance (G-T):
Why “government spending (G) is INSENSITIVE to current economic activity” => Not impacted by GDP (Y)???
Anyone here could explain it?
Thanks alot.

 

[S2000magician]

Is there some reason that a change in real aggregate income should cause a change in government spending?

 

[oktavian]

S2000magician wrote:
Is there some reason that a change in real aggregate income should cause a change in government spending?

looking at countries worldwide, there might be a correlation between GDP and government spending

 

[Vandelay Industries]

S2000magician wrote:
Is there some reason that a change in real aggregate income should cause a change in government spending?

Seems intuitive to me that government spending would increase as real income decreases

 

[MrSmart]

I’m not sure what your question is, but if I understood correctly, then it’s because government spending follows fiscal policy and is independent of GDP levels and growth, although there tends to be a correlateion obviously.

 

[oktavian]

tomtom2312: Think of government spending as independent of GDP (the word is “exogenous”), not necessarily as a constant. The government will do whatever it wants. If there is a recession, they can spend more to help unemployed citizens, or they can choose austere policies. Either way, there is no equation to link it to the other factors of GDP.
In the short term, overspending = borrowing; underspending = saving.
In the long term, I think there must be more of a link with government income, but its not easy to write this as an equation.

 

[S2000magician]

MrSmart wrote:I’m not sure what your question is, but if I understood correctly, then it’s because government spending follows fiscal policy and is independent of GDP levels and growth, although there tends to be a correlateion obviously.

[Statistical] independence means that ρ = 0. So which is it: are they (statistically) independent, or does ρ ≠ 0?

 

[S2000magician]

Vandelay Industries wrote:

S2000magician wrote:Is there some reason that a change in real aggregate income should cause a change in government spending?

Seems intuitive to me that government spending would increase as real income decreases

Why?
If real income increases, does government spending therefore decrease?
Again, why?