Homework: Read handout on the impact of automatic stabilizers (and make sure first 4 sides of the handout are finished)
- Explain that the government earns revenue primarily from taxes (direct and indirect), as well as from the sale of goods and services and the sale of state-owned (government-owned) enterprises.
- Explain that government spending can be classified into current expenditures, capital expenditures and transfer payments, providing examples of each.
- Distinguish between a budget deficit, a budget surplus and a balanced budget.
- Explain the relationship between budget deficits/surpluses and the public (government) debt.
- Explain how changes in the level of government expenditure and/or taxes can influence the level of aggregate demand in an economy.
- Describe the mechanism through which expansionary fiscal policy can help an economy close a deflationary (recessionary) gap.
- Construct a diagram to show the potential effects of expansionary fiscal policy, outlining the importance of the shape of the aggregate supply curve.
- Describe the mechanism through which contractionary fiscal policy can help an economy close an inflationary gap.
- Construct a diagram to show the potential effects of contractionary fiscal policy, outlining the importance of the shape of the aggregate supply curve.