Are transfer payments injections? (1 Viewer)

[buffy19]

Just wondering if transfer payments are classified as injections into the circular flow? Also, what would government borrowing be classified as?

Cheers!

 

[klaw]

govt expenditure = injections

 

[buffy19]

I understand government exp. is an injection, but what about government borrowings?

I thought transfer payments was an example of government expenditure.

 

[buffy19]

Do you know what part of the circular flow, transfer payments would be in then?

The government pays out money (collected from tax etc) to people and so surely this would inject more money into the economy?

 

[klaw]

I understand government exp. is an injection, but what about government borrowings?

I thought transfer payments was an example of government expenditure.

oops I misread the question hahahaha

 

[Sarah168]

TRANSFER PAYMENTS: Government payments to individuals not as compensation for production of goods and services

net taxes = taxes - transfer payments

disposable income = income - net taxes

GDP equals aggregate income

Aggregate income equals disposable income (YD) plus net taxes (NT)

thats the income method i suppose

bit confusing. perhaps try looking it up in the index of a few textbooks
GDP = YD + NT

 

[Cityboy]

Of course transfer payments are injections (unless they are unrequited payments e.g. to those living overseas) just look at the circular flow of income model, any expenditure by the government is an injection.

In terms of borrowing, it is an injection. In the circular flow model the borrowing oif funds is called investment and this is an injection.

 

[nick1048]

I dont see how transfer payments have any alteration on the economies total income. U take from the rich n give to the poor. It's redistribution if anything

 

[Cityboy]

If the govt decided to vut or enhance the total amount of transfer payments this would effect the aggregate demand in the economy and as such changes in transfer payments have the ability to change the national income.

 

[buffy19]

Yes, according to my lecturer transfer payments are an injection.

 

[motlai]

northonline.sccd.ctc.edu/tcook/JEE/Chapter%2017.pdf

According to this thing, transfer payments are not injections as they do not add to overall output, they merely redistribute

 

[buffy19]

As I see it, transfer payments are injections as it increases the income of low-income earners. The increase in income will lead to an increase in demand and increase consumption and aggregate demand.

 

[launcher169]

what about the mulitplier effect, see as the rich will most likely save or invest the extra money that they earn from paying less tax, indirectly that will affect aggregate demand through investment spending

however, if this money is redistibuted through the welfare system to the poor (note the automatic stabilizer effect) they will most likely spend the money as they have a higher marginal propensity to consume....the multiplier effect comes into play

the multiplied effect will be much higher than the effect of increased investment expenditure therefore, transfer payments are an injection into the economy (combined with the rest of government expenditure)

 

[kachman]

lol guys (2014 on a 2005 thread)

anyways, my book says an Injection is money that flows to firms WITHOUT being recycled through house holds. So i was thinking since transfer payments are recycled back to households, then they don't qualify as injections into the circular flow. what do you think?