Budgetary Action

If, as in recent years, the Federal Government reduces the size of its budget deficit and moves into surplus, less liquidity is injected into the economy, contributing to slower economic activity. On the other hand, as the government moves into surplus, it does not need to borrow funds, which should help reduce interest rates and boost economic activity (a crowding in effect). Specific budgetary measures also have the potential to affect aggregate demand, including changes to company tax, depreciation allowances and investment allowances.