An Example The US government collects $10M in taxes.

Post on 17-Jan-2016

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Transcript of An Example The US government collects $10M in taxes.

An ExampleThe US government collects

$10M in taxes

Public•Taxpayers

Government

Government’s checking account + $10M Public’s checking account - $10MNet change = 0

Tax Payments$10M

Assets = Liabilities + Net Worth

00

Bank’s Balance Sheet

Central Bank

An ExampleThe government borrows $10M

from the public

Public•Lenders•Savers

Government

Payment for Securities

Government Securities

0 0

Assets = Liabilities + Net Worth

Bank’s Balance Sheet

Central Bank

Government’s checking account + $10M Public’s checking account - $10MNet change = 0

An ExampleThe government spends the funds

Public•Highway Contractor

Government

Goods & ServicesPayment

0 0

Assets = Liabilities + Net Worth

Bank’s Balance Sheet

Central Bank

Government’s checking account - $10M Public’s checking account + $10MNet change = 0

Example: Central Bank Buys $10M in Treasury Bonds

Example: Central Bank Buys $10M in Treasury Bonds

Public

Public’s checking account +$10MNet change = $10M

GovernmentSecurities $10M

Assets = Liabilities + Net Worth

Reserves atFed + $10M

0

Bank’s Balance Sheet

Central Bank

Check$ 10M