At every level of government, from the town hall to the White House, fiscal policy—government decisions about how much to spend, what to spend for, and how to finance its spending—is of importance. central
Politicians and the public understand that the government's fiscal choices have a direct impact on the "bread and butter" issues of how much they pay in taxes and what government benefits and services they receive.
Equally important are the effects of fiscal policy on the economy. In recent years, people have become more aware of the macroeconomic effects of fiscal policy as the economic implications of government budget deficits and surpluses, tax reform, Social Security reform, government bailouts, and other aspects of fiscal policy have been extensively debated.In this chapter we take a close look at fiscal policy and its macroeconomic effects. To provide some background, we begin with definitions and facts about the government's budget. We then discuss some basic fiscal policy issues, including the effects of government spending and taxes on economic activity, the burden of government debt, and the link between budget deficits and inflation.
Learning Objectives
15.1 Use the measures of government outlays and taxes to measure government surpluses and deficits.
15.2 Describe how government spending and taxing decisions affect the macroeconomy.
15.3 Discuss the economic effects of government deficits and debt.
15.4 Explain the link between deficits and inflation.
15.1