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

Try It

What happens to the national debt when there is a budget surplus? What happens to it when there is a budget deficit? What happens to the national debt if there is a decrease in a surplus? What happens to it if the deficit falls?