Long-Run Implications of Fiscal Policy and Monetary Policy : Deficits and the Public Debt Lesson 33 Sections 30, 31

Budget Balance Budget Balance as a Measure of Fiscal Policy Government Purchases Transfers Taxes Business Cycle Should the Budget be Balanced?

Long Run Implications of Fiscal Policy Deficit, Surplus, and Debt Fiscal Year Oct1 to Sep30 Public Debt 18,010,010,000,000 11 Dec 14 Problems Posed by Rising Government Debt Crowding Out Cost of Financing the Debt Deficits and Debt in Practice Debt to GDP Ratio

Implicit Liabilities Implicit Liabilities are spending promises on future budgets Medicare Social Security Medicaid

Monetary Policy and the Interest Rate Fed uses changes in money supply to change interest rates Fed board meets every 6 weeks to determine policy Set the Fed Funds Rate (desired level of interest rates) Purchase or Sell Treasury Bills until rates match policy

Monetary Policy and Aggregate Demand Expansionary Policy When output is lagging (below potential) Contractionary Policy When inflation is rising Inflation Targeting Rather than using rates to set inflation, some banks target an inflation rate to set the inflation rate they want