Summary Fiscal Policy, deficits, and debt Macroeconomics Notes

Fiscal Policy, Deficits, and Debt:



Fiscal Policy-

 Fiscal policy is often initiated on the device of the council of
economic advisersCEA) and includes:
 Deliberate changes-
o Government spending.
o Taxes.
 Designed to-
o Achieve full employment.
o Control inflation.
o Encourage economic growth.
 Discretionary or non-discretionary.



Expansionary Fiscal Policy-

 Expansionary fiscal policy
 Use during a recession:
 Increase government spending.
 Tax reductions.
 Combination of both.
 Create a budget deficit.



Contractionary Fiscal Policy-

 Contractionary fiscal policy: Use during demand-pull inflation.
 Progressive tax system.
 Proportional tax system.
 Regressive tax system.
 Political considerations.
 Future policy reversals.
 Offsetting state and local finance.
 Crowding out effect.



The U.S. Public Debt-