Taxes affect the economic choices made by individuals, but so do the expenditures for which the taxes are collected. Government spends money by purchasing goods and services and by providing benefits in the form of transfer payments and subsidies. We use the letter G to denote government purchase of goods and services and T to denote taxes minus transfer payments.
In our simplified version of NIPA accounting, we consider all government purchases to be consumption spending, such as spending on the wages for government workers. But it is important to recognize, as do the NIPA accounts, that some government purchases are for infrastructure projects like roads and schools.
Here we will consider government spending on ...
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