Some Aspects of Fiscal Policy

•Structural Surplus/Deficit – the budget with business cycle effects removed

–A hypothetical measure to gauge how much fiscal policy will influence the economy after extracting the effects of the current state of the economy

–Compare current government spending (G) with what tax revenues (T) would be at full employment (even if not there now). The difference between these is the structural surplus (if T > G) or deficit (if G > T)

–Fiscal policy is expansionary when there is a structural deficit (not necessarily with an actual deficit)

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