ECON 101 Lecture Notes - Lecture 10: Fiscal Sustainability, Public Choice, Automatic Stabilizer
Document Summary
Can be split into 2 distinct types of spending: discretionary spending, mandatory spending. Decided through the appropriations process of congress. Includes: national defense, transportation, science, environment, income security (some welfare programs like medicaid), education, and veteran benefits and services. Does not go through the same appropriation process. Includes: social security, medicare, medicaid, snap, tanf, and interest on the national debt. Discretionary fiscal policy: main goal: increase ad, move economy to full employment, encourage economic growth, control inflation, adjusts government spending, adjusts tax policies. When government spending is injected into the economy, the total level of economic activity will expand by an amount equal to the size of the new expenditure times the multiplier. Because short-run aggregate supply is upward-sloping, some of the increase in output is absorbed by rising prices. When government spending shifts aggregate demand to the right, the equilibrium level of output will increase along with the price level.
