2.  Fiscal policy is defined as the government’s own approach to spending and taxation.  Remember : ◦ Taxation levels determine the government’s revenue ◦ Government spending (G) includes spending on programs, services, government salaries, and transfers to provinces.

3.  When you subtract the government spending from their tax revenue, you determine the government’s deficit or surplus.  Deficit: When spending (G) is greater than tax revenue.  Surplus: When spending (G) is less than tax revenue.  Balanced Budget: when spending (G) equals tax revenue.

4.  What is the history in Canada?  We have had budget deficits in two periods: ◦ 1940’s to 1997 ◦ 2009-present  We have had budget surpluses in the years ◦ 1998-2008.

5.  Government Deficit: refers to the yearly amount that spending exceeds tax revenue.  Government Debt: the sum of all government deficits less its surpluses.  In 2014, our deficit was $16.6 billion, and our direct debt was $1.2 trillion (2013) ( Source: Fraser Institute, April 2014 ) ◦ http://www.fraserinstitute.org/uploadedFiles/fraser- ca/Content/research-news/research/publications/canadian- government-debt-2014.pdf http://www.fraserinstitute.org/uploadedFiles/fraser- ca/Content/research-news/research/publications/canadian- government-debt-2014.pdf

6.  http://www.montrealgazette.com/news/2013 -budget/bullet/index.html http://www.montrealgazette.com/news/2013 -budget/bullet/index.html  http://www.cbc.ca/news2/interactives/canad a-deficit/ http://www.cbc.ca/news2/interactives/canad a-deficit/

7.  What should government do to achieve our macroeconomic goals (full employment, stable prices, low inflation)?  Two Schools of Thought: 1.Interventionist Policy (Countercyclical Fiscal Policy) 2.Balanced-Budget Fiscal Policy

8.  The idea that governments should help the economy achieve full employment with minimal inflation.

9. In periods of recession: ◦ governments should increase spending, thus helping people find jobs and fuel the economy. ◦ governments could lower taxes to increase people’s disposable income (thus increasing aggregate demand)

10. In periods of high growth (booms)  The government should decrease spending.  The government should increase taxes. Both of these policies will have the effect of reducing aggregate demand in the economy, and thus, lowering price levels.

11.  It is subject to serious time lags (by the time we realize we are in a recession, we might have already been there for some time)  It can cause serious budget deficits.

12.  The belief that a government budget should be balanced in each budget period, regardless of our position in the business cycle.

13.  Automatic Stabilizers: tax laws and government spending programs that automatically adjust to reduce spending in times of boom and increase spending in times of recession.  Example: Our progressive tax system (when the economy is in a recession, GDP ↓, tax revenue ↓, amount paid out in welfare and EI ↑)

14. Economists that believe in balanced-budget fiscal policy believe that:  Modern economies have enough automatic stabilizers built-in to avoid large swings in the economy (deep recessions, or periods of huge economic boom).  Countercyclical policy does more harm than good (leads to large deficits).

15.  It is interesting to look at our national debt levels as a percentage of our GDP.  Interactive World Map Interactive World Map