As you have learned from viewing the first three videos about fiscal policy, governments can deploy discretionary fiscal policy to influence economic cycles, with the objective being full employment and low inflation. However, expansionary fiscal policy often comes at a cost in the form of a higher annual deficit and – consequently – higher national debt.
Key learning objectives:
Explain how discretionary fiscal policy affects deficits and national debt
Understand how deficits and national debt have changed in the recent past in the US and UK.
Discuss how the coordination of monetary, fiscal and regulatory policy affects the potency of government and central bank countercyclical policies.