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Digestive System Essay

300 words - 2 pages

Our government budget deficits grow during a recession because of the relationship between a deficit and the health of the economy, and there can be massive budget deficits when the economy is doing quite well. When the economy goes into recession there is a trickle effect. It costs workers their jobs, and causes corporate profits to decline. Then less income tax revenue flows to the government along with less corporate income tax revenue. Even though the government ...view middle of the document...

If an increase in government spending and/or a decrease in tax revenues lead to a deficit that is financed by increased borrowing, then the borrowing can increase interest rates leading to a reduction in private investment. Therefore the government uses up its financial and other resources that would otherwise be used by private enterprise. Automatic stabilizers work as a tool to dampen fluctuations in real GDP without any explicit policy action by the government and though these stabilizers do exist they tend to function in the short term. An expansionary fiscal policy is when government spending exceeding tax revenue and the contractionary fiscal policy occurs when government spending is lower than tax revenue. Fiscal policy is the use of government expenditure and revenue collection (taxation) to influence the economy, ^ Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action . I believe the expansionary fiscal policy was used to jump start the economy because it increases both the aggregate expenditures and aggregate demand through an increase in government spending (both purchases and transfer payments) or a decrease in taxes. This policy leads to a larger government budget deficit or a smaller surplus.

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