Fiscal Policy

Implicit Liabilities

• Implicit liabilities are spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics.

Future Demands on the Federal Budget

Practice Questions

• If the government wanted to close a recessionary gap of $100 with increased spending, would it want to increase spending by $100, more than $100, or less than $100?
• If the gov’t increased spending by $50 million, what would be the specific effect on GDP? Assume MPC=0.2
• Explain why a $1 increase in spending will likely have a larger impact on the economy than a $1 tax cut.