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Study Guide - Module 30 What is discretionary fiscal policy? How can it be used to stabilize an economy in the short run (describe both times of recession and times of inflation). What is the equation for the budget balance, otherwise known as savings by government? What does each part mean? How do expansionary and contractionary policies affect it? Explain two reasons why the budget balance is not a good measure of fiscal policy. What is the historical relationship between the budget balance and the business cycle? Relate this to both GDP and Unemployment. What is this relationship caused by? Why/how? Business cycle effects on the budget balance are short run or temporary. Why? What does it mean to separate the effect of the business cycle from the effects of discretionary fiscal policy on the budget balance? What does this give insight into? Define the cyclically adjusted budget balance. Explain why most economists believe that a balanced budget, forced by law, would be a bad idea. Define fiscal year and public debt. Describe the problems posed by rising government debt. Why can't a government just print more money to pay its bills? What measure do we use to assess the ability of a government to pay its debt? Why do we use that measure? What does it tell us? Define implicit liabilities. How do these make the US's budget situation look concerning, even alarming? What are the US's three largest implicit liabilities? What are dedicated taxes? How do these explain the difference between total debt and the amount owed to the public? (Likewise, what is the social security trust fund? What is its role in explaining this difference?)