What does the permanent income hypothesis say?

Suppose the government borrows money from the people to finance its expenses, with the promise to pay them back interest.

In this case, the interest that the government pays the people on its loans will be financed by higher taxes.

Suppose the economy is suffering from the problem of unemployment. This means that we are most likely in the stage of the business cycle.

Suppose the government borrows money from the people to finance its expenses, with the promise to pay them back interest.

This policy is fundamentally different from raising taxes.

In what sense is fiscal policy ineffective?

The government borrowing and the government taxing are effectively the same.

You'll have to take some notes on this question.

The government's budget balance has a simple formula:

The government's revenue is what it earns through taxes (T). Its expenses are all its spending, including its purchase of goods/services (G) as well as transfer payments. If the two match, the government will have a balanced budget. If its revenues are higher, it will have a budget surplus. If the expenses are higher, it will have a budget deficit.

Now, suppose that the government initially has a balanced budget, then it starts spending more to stimulate the economy and create jobs. This will result in a for the government.