IV. Automatic stabilizers
         A. Cause the economy to expand without government action during recession by increasing AD.
         B. Cause the economy to contract without government action during inflation by lowering AD.
         C. fiscal policy & automatic stabilizers - You Tube 8 min.
         D. Examples
             1. Transfer payments (unemployment compensation, food stamps, and other social programs) 
                 increase during recession to increase AD.
             2. Progressive taxes (income tax) increase during inflation to lower AD.
             3. The Importance of Automatic Stabilizers to the Economy - CBS

    V. Fiscal policy effectiveness is questionable 
         A. Timing
             1. Determining when recessions begin is difficult. 
                 a. Disagreement over whether the U.S. was in a recession from 1989-1991 resulted in little 
                     fiscal action being taken.
                 b. The 2001 slowdown happened so fast there was not time for preemptive action.
             2. Fiscal policy takes time to implement 
             3. There will be a delay because it takes business time to expand capital investment.                 
         B.  Political considerations
             1. Some spending programs are difficult to cut (social security).
             2. Expansionary bias: people vote to spend but not to tax.
             3. Political business cycle: it is difficult to accomplish anything economically constructive during an election year
        C. Until recently, many felt the federal debt is too big and has rendered fiscal policy ineffective. Its success in ending
             the 2001 recession has yet to be determined although the Federal budget surplus certainly makes it easier to increase 
             federal spending and decrease taxes although the expense of fighting three wars has again increased the deficit.

VI. Monetary affects of fiscal policy
      A. Until recently, government borrowing increased the demand for loanable funds causing higher long-term interest rates. 
           1. Crowding out is the term used to describe how high rates due to government borrowing lower private investment.
           2. Many feel high economic growth of the late 1990's resulted because of low interest rates caused by federal fiscal
               responsibility.   
      B. In the early 1990 people were people are concerned about the fiscal drag caused by a federal surplus.
      

C. In 2012 people fear the drag of taking away the stimulus of 2009- 2011. The Debt Ceiling Deal from the 8/6/11 issue of The Economist