ECON 211 Lecture Notes - Lecture 8: Congressional Budget Office, Government Budget Balance, Business Cycle

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6 Dec 2018
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Increase government spending (spending: cut taxes (taxes) Built in stability: no explicit action by policy makers: it is automatic, decrease a budget deficit (or increase a surplus) during an expansion. Increases the government budget deficit (or reduces a surplus) during a recession. The greater the progressivity of the tax system, the greater the built-in stability of the economy. Actual budget deficit provides no clear indication of the direction of fiscal policy. You must subtract the cyclical portion of the budget from the actual budget to get the full employment budget. A balanced budget requirement would eliminate active fiscal policy. A balanced budget requirement would force government to decrease spending or increase taxes during a recession. These actions will tend to worsen recession. Recognition lag: lag between actual start of recession or inflation and awareness that it is occurring. Administrative lag: lag between time of recognizing the problem and time legislation is passed.

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