ECN 204 Lecture Notes - Lecture 8: Aggregate Supply, Business Cycle, National Debt Of The United States
Document Summary
Combined government spending increases and tax reductions. May create a budget deficit: contractionary fiscal policy. Combined government spending decreases and tax increases. If inflation, then decrease government spending: net tax revenues vary directly with gdp. Taxes rise when gdp rises, and vice versa. Transfer payments fall when gdp rises, and vice versa: leads to automatic stabilization over the business cycle, automatic or built-in stabilizers. A structure of taxation and spending that: Increases the deficit (reduces the surplus) during recession. Increases the surplus (reduces the deficit) during inflation: economic importance. The stabilizers will automatically restrain economic expansion and cushion economic contraction. Reductions in spending are desirable when the economy is developing inflationary pressures. Increases in spending are desirable when the economy is slumping. The more progressive the ta(cid:454) s(cid:455)ste(cid:373), the g(cid:396)eate(cid:396) the e(cid:272)o(cid:374)o(cid:373)(cid:455)"s (cid:271)uilt-in stability. Evaluating how expansionary or contractionary fiscal policy is determined: to evaluate fiscal policy stance, must. Adjust deficits and surpluses to eliminate automatic changes in tax revenues.