ECN 204 Lecture Notes - Lecture 7: Refinancing, Longrun, National Debt Of The United States
11 Apr 2017
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Document Summary
Since 1945, fiscal policy has been one of the government"s main stabilization policy tools. Active if changes in government spending or taxes are at the option of government. Budget surplus: annual amount by which government revenues exceed government expenditures. Budget deficit: annual amount by which government expenditures exceed taxes. Public debt: accumulation of all past deficits and surpluses. Options: increased government spending, tax reductions, combined government spending increases and tax reductions. Options: decreased government spending, increased taxes, combined government spending decreases and tax increases. To expand the size of government: if recession, then increase government spending, if inflation, then increase taxes. To reduce the size of government: if recession, then decreases taxes, if inflation, then decrease government spending. Net tax revenues vary directly with gdp: tax revenues rise when gdp rises, and vice versa, transfer payments falls when gdp rises, and vice versa. Leads to automatic stabilization over the business cycle.
