TAILIEUCHUNG - Ebook Macroeconomics (9/E): Part 2

(BQ) Part 2 book "Macroeconomics" has contents: A brief economic history of the united states; resource utilization; the mixed economy; supply and demand; the household–consumption sector; the business–investment sector; the government sector; the export–import sector; economic fluctuations, unemployment, and inflation; classical and keynesian economics,.and other contents. | Page 275 5/3/08 7:36:03 AM user-s206 /Users/user-s206/Desktop Chapter 12 Fiscal Policy and the National Debt T hese are exciting times—at least for economists. In 2000 we had the largest federal government surplus in our history; since 2002 we’ve been running large deficits. Fiscal policy is the manipulation of the federal budget to attain price stability, relatively full employment, and a satisfactory rate of economic growth. To attain these goals, the president and Congress must manipulate its spending and taxes. Later, in Chapter 14, we’ll look at monetary policy, which uses very different means to promote the same ends. LEARNING OBJECTIVES In this chapter you will learn about: 1. 2. 3. 4. 5. The recessionary gap. The inflationary gap. The multiplier and its applications. Automatic stabilizers. Discretionary fiscal policy. 6. 7. 8. 9. Budget deficits and surpluses. Fiscal policy lags. The public debt. Crowding-in and crowding-out. Putting Fiscal Policy into Perspective Until the time of the Great Depression, the only advice economists gave the government was to try to balance its budget every year and to not interfere with the workings of the private economy. Just balance the books and then stay out of the way. There was no such thing as fiscal policy until John Maynard Keynes invented it in the 1930s. He pointed out that there was a depression going on and that the problem was anemic aggregate demand. Consumption was lagging because so many people were out of work. Investment was extremely low because businessowners had no reason to add to their inventories or build more plant and equipment. After all, sales were very low and much of their plant and equipment was sitting idle. So the only thing left to boost aggregate demand was government spending. What about taxes? Well, certainly, we would not want to raise them. That would push aggregate demand even lower. We might even want to cut taxes to give .

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