What happens to the government budget deficit if it uses expansionary FP?
What happens to the government budget deficit if the economy enters a recession and the government does NOTHING? So, if the government budget deficit increases when the economy enters a recession, does this indicate that the government is doing some SOMETHING (expansionary FP)? Since deficits increase during recessions whether the government does SOMETHING or NOTHING we cannot use larger deficits as an indicator that the government is doing something. Therefore, economists have created a the concept of a “full employment budget” An increase in the full employment budget deficit is an indicator of discretionary expansionary FP – actual budget A listing of amounts spent by the Federal government (to purchase goods and services and for transfer payments) and the amounts of tax revenue collected by it in any (fiscal) year. – cyclical deficit A Federal budget deficit which is caused by a recession and the consequent decline in tax revenues. GRAPH – standardized (full-employment) budget A co
