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Module 30: Long-run Implications of Fiscal Policy: Deficits and the Public Debt ? Why governments calculate the cyclically adjusted budget balance Why a large public debt may be a cause for concern Why implicit liabilities of the government are also a cause for concern ? Recession ? Expansionary fiscal policy ? Raising government spending/lowering taxes ? Aggregate demand curve shifts to the right Inflation ? Contractionary fiscal policy ? Lowering government spending/raising taxes ? Aggregate demand curve shifts to the left ? The Budget Balance as a Measure of Fiscal Policy Budget Balance: the difference between the government?s tax revenue and its spending in a given year T: value of tax revenues G: government purchases of goods and services
