Alright. Now let's see some of the long-run effects of fiscal policy. So let's start with the first situation which is one that we kind of see happening in the US right now, is a persistent government budget deficit. That means that the tax revenues, the money they're bringing in, is less than they're spending. Okay? So they're spending more than they are bringing in in revenue. They have a budget deficit. So how are they going to pay for this deficit? By borrowing funds, right? Just like anyone, when you need money, you're going to borrow it to make up your debts. So, when the government needs to borrow money, we have what's called the crowding-out effect. Okay? This is one of those buzzwords that they love to use is the crowding-out effect. And this is where the government is competing with firms for loanable funds and that's going to drive up the interest rate. So let's kind of follow. Let's see how this leads to higher interest rates. When the budget, when there's a budget deficit, well, the government is going to be borrowing money, right? The government's going to be borrowing money, meaning there's more demand for money driving up the price of money, which is interest, right? So when the government is borrowing, there are more people trying to borrow, there's not just firms trying to borrow money right now, now there's also a government trying to borrow money and they're going to fight for those loanable dollars driving the price up. So with that interest rate higher, well now at a higher interest rate, there's going to be less investment spending, right? Because investors want to have a low interest rate when they're going to invest in long-term things like factories and equipment. Whatever they're going to build, they want to have a lower interest rate to have higher profit. So the higher the interest rate goes, the lower the investment spending is going to go, which leads to lower long-run growth, right? Because if there's no investment spending, no factories being built, no equipment, no buildings being built, well, those are the things that we need, those investments, those capital investments for long-term growth. So, this budget deficit has long-term implications on our GDP, right? Our long-term growth, our long-run growth of our economy is stunted by having a budget deficit. So the debt leads to interest payments and that's going to put pressure on future budgets, right? The more money you borrow now, well, that's the more interest you're going to have to pay off later. So in further years, we're going to have to be even more conservative with our spending because of all of these interest payments. So, in future years, the government's going to have to increase taxes or cut spending to pay off the debt. Right? They're gonna have to be more conservative in the future. Now, the government should try to balance extra spending during recessions with surpluses during expansions, right? So when they're in a recession, maybe they should increase their spending and then in an expansion, maybe they should pull it back. Does this actually happen? Not really, right? Even though they boost up their spending during a recession, a lot of times, it's hard to take back that spending, okay? Sometimes, once those wheels are in motion, it's hard to kind of stop the train of government spending from going. So it doesn't really happen that they balance out when they spend a lot with times where the economy is good and spend less, okay? So that's really what happens with a persistent government deficit. A budget deficit has this crowding-out effect leads to stunted long-run growth, okay? Let's pause here and let's talk about long-run tax policy in the next video.
Table of contents
- 1. Introduction to Macroeconomics1h 57m
- 2. Introductory Economic Models59m
- 3. Supply and Demand3h 43m
- Introduction to Supply and Demand10m
- The Basics of Demand7m
- Individual Demand and Market Demand6m
- Shifting Demand44m
- The Basics of Supply3m
- Individual Supply and Market Supply6m
- Shifting Supply28m
- Big Daddy Shift Summary8m
- Supply and Demand Together: Equilibrium, Shortage, and Surplus10m
- Supply and Demand Together: One-sided Shifts22m
- Supply and Demand Together: Both Shift34m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 26m
- Percentage Change and Price Elasticity of Demand19m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
- Consumer Surplus and WIllingness to Pay33m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Floors: Finding Areas54m
- 6. Introduction to Taxes1h 25m
- 7. Externalities1h 3m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. Introducing Economic Concepts49m
- Introducing Concepts - Business Cycle7m
- Introducing Concepts - Nominal GDP and Real GDP12m
- Introducing Concepts - Unemployment and Inflation3m
- Introducing Concepts - Economic Growth6m
- Introducing Concepts - Savings and Investment5m
- Introducing Concepts - Trade Deficit and Surplus6m
- Introducing Concepts - Monetary Policy and Fiscal Policy7m
- 11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
- Calculating GDP11m
- Detailed Explanation of GDP Components9m
- Value Added Method for Measuring GDP1m
- Nominal GDP and Real GDP22m
- Shortcomings of GDP8m
- Calculating GDP Using the Income Approach10m
- Other Measures of Total Production and Total Income5m
- Consumer Price Index (CPI)13m
- Using CPI to Adjust for Inflation7m
- Problems with the Consumer Price Index (CPI)6m
- 12. Unemployment and Inflation1h 22m
- Labor Force and Unemployment9m
- Types of Unemployment12m
- Labor Unions and Collective Bargaining6m
- Unemployment: Minimum Wage Laws and Efficiency Wages7m
- Unemployment Trends7m
- Nominal Interest, Real Interest, and the Fisher Equation10m
- Nominal Income and Real Income12m
- Who is Affected by Inflation?5m
- Demand-Pull and Cost-Push Inflation6m
- Costs of Inflation: Shoe-leather Costs and Menu Costs4m
- 13. Productivity and Economic Growth1h 17m
- 14. The Financial System1h 37m
- 15. Income and Consumption52m
- 16. Deriving the Aggregate Expenditures Model1h 22m
- 17. Aggregate Demand and Aggregate Supply Analysis1h 18m
- 18. The Monetary System1h 1m
- The Functions of Money; The Kinds of Money8m
- Defining the Money Supply: M1 and M24m
- Required Reserves and the Deposit Multiplier8m
- Introduction to the Federal Reserve8m
- The Federal Reserve and the Money Supply11m
- History of the US Banking System9m
- The Financial Crisis of 2007-2009 (The Great Recession)10m
- 19. Monetary Policy1h 32m
- 20. Fiscal Policy1h 0m
- 21. Revisiting Inflation, Unemployment, and Policy46m
- 22. Balance of Payments30m
- 23. Exchange Rates1h 16m
- Exchange Rates: Introduction14m
- Exchange Rates: Nominal and Real13m
- Exchange Rates: Equilibrium6m
- Exchange Rates: Shifts in Supply and Demand11m
- Exchange Rates and Net Exports6m
- Exchange Rates: Fixed, Flexible, and Managed Float5m
- Exchange Rates: Purchasing Power Parity7m
- The Gold Standard4m
- The Bretton Woods System6m
- 24. Macroeconomic Schools of Thought40m
- 25. Dynamic AD/AS Model35m
- 26. Special Topics11m
20. Fiscal Policy
Long Run Effects of Fiscal Policy
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