1. Fiscal Policy and the Business Cycle

4. Aggregate Supply Curve Price Level Real GDP Supplied AS Full employment output Maximum Capacity Output Output can increase without an increase in prices as resources are not fully utilized As output rises, resources become scarce resulting in increasing prices Economy producing at a point on the production possibilities curve – no more output possible without increases in technology or new physical inputs

16. Dynamics of the Business Cycle Increased Demand Increased Production More Workers Hired Rise in Consumer Incomes Increased Consumer Spending Increased Competition For Capital Goods Upward Pressure on Interest Rates Decrease in Consumer Borrowing Decrease in Consumer Demand Increase in Business Inventories Decreased Production Workers Laid-Off Lower Consumer Incomes Increase in Producer Bankruptcies Falling Prices

17. Dynamics of the Business Cycle Increased Demand Increased Production More Workers Hired Rise in Consumer Incomes Increased Consumer Spending Decrease in Consumer Demand Increase in Business Inventories Decreased Production Workers Laid-Off Lower Consumer Incomes Increase in Producer Bankruptcies Falling Prices Increase in House Prices Falling House Prices Increase in House Construction

30. Debt Comparisons

31. Debt Comparisons

32. Canadian Federal Budget Actual 1 Estimate Projection 2004–05 2005–06 2006–07 2007–08 (billions of dollars) Budgetary revenues 211.9 220.9 227.1 235.8 Program expenses 176.3 179.2 188.8 196.5 Public debt charges 34.1 33.7 34.8 34.8 Total expenses 210.5 212.9 223.6 231.4 Planned debt reduction 1.5 8.0 3.0 3.0 Remaining surplus 0.6 1.4 Federal debt 494.4 486.4 483.4 480.4 Nominal GDP (billions of dollars, calendar year) 1,290 1,369 1,451 1,517