Chapter 11: Fiscal Policy, Surpluses and Debt

Government adjusting spending and taxes in order to increase or decrease aggregate demand.

The government DELIBERATELY changing spending and taxes to promote full employment, price stability and economic growth

• Increase in goverment spending & decrease in taxes ---> increase aggregate demand
• (shift aggregate demand curve to the right)

• Decrease in government spending & increase in taxes ---> decrease aggregate demand
• (shift aggregate demand curve to the left)

• The amount by which government expenditures exceed revenues/tax
• G > T

• The amount by which revenues exceed expenditures
• G < T

• Results from net taxes
• Lessens, but does not fully correct, undesired changes in GDP

• Measures the federal budget defecit or surplus that would occur if the government were to operate at full employment
• Reveals whether fiscal policy is expansionary, neutral or contractionary
• (Fiscal policy is expansionary when CAB is positive)

Expansionary fiscal policy may increase interest rate and reduce investment spending

The total accumulation of the government's defecits (minus surpluses) over time