What’s the best fiscal policy?

The text(ch11)explains the connection between the state of the economy and the appropriate fiscal policy. If output is too low, below the full employment level, then too-high unemployment is likely the main problem facing the economy. We should raise government spending or cut taxes. If output is too high, above the full employment level, then rising inflation is probably the main economic problem. We should cut government spending or raise taxes.

The text also suggests a connection between the state of the economy and the federal budget. When output is below full employment, it says a budget deficit is in order. When output is above full employment, it says we should run a budget deficit.

Use the first web site listed below to find the budget surplus or deficit for the last three years. Use the second web site to find the unemployment rate during those same years. Explain whether you think fiscal policy was appropriate during the last three years, assuming the economy is at the full employment level when the unemployment rate is 5 percent. Make your reasons clear.

The Congressional Budget Office provides nonpartisan analysis of the economy and the budget to Congress. Go to their home page (see the URL below), click on “Historical Budget Data,” and then roll down to look at the last three years of data in Table 1. Write down the last three numbers in the fourth column, the “on-budget surplus or deficit”.
www.cbo.gov

The Federal Reserve Bank of St. Louis maintains a free database of economic data called FRED II. Go to the page (find the URL below) and click on “Civilian Unemployment Rate.” Look at the chart to get the unemployment rate over the last 3 years.”
research.stlouisfed.org/fred2