Another agent: Government

• Government is different from consumers and firms. Although government provides goods and services, it usually doesn’t charge for them. So, when looking at the money flows for government, there are four, two inflows and two outflows.

• Government Purchases of goods and services (G) is a major outflow. This happens when the gov’t. actually gets goods in return for money payments, such as buying airplanes or school buildings.

• Government Transfers also are a major outflow.

• The two inflows are:

• Taxes (T) and

• Government Borrowing by selling bonds to financial investors.

• The Government’s budget constraint is that:

• G + Transfers must = T + borrowing