Government and Fiscal Policy

Read this chapter to learn about how the government's fiscal actions influence aggregate demand. The chapter first introduces the components of the government's budget and then discusses discretionary fiscal policy and automatic stabilizers used to influence the economy. Some lags in the implementation of fiscal policy are identified and the concept of crowding out is introduced. Attempt the "Try It" exercises at the end of the section.

1. Government and the Economy


  1. Understand the major components of U.S. government spending and sources of government revenues.
  2. Define the terms budget surplusbudget deficitbalanced budget, and national debt, and discuss their trends over time in the United States.

We begin our analysis of fiscal policy with an examination of government purchases, transfer payments, and taxes in the U.S. economy.