A fiscal rule adopted by Chancellor of the Exchequer, Gordon Brown for HM Treasury in the UK to provide a guideline for the operation of fiscal policy. The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending. The Right Honourable Gordon Brown, PC, MP, current Chancellor of the Exchequer The Chancellor of the Exchequer is the ancient title held by the British cabinet minister whose responsibilities are akin to the posts of Minister for Finance or Secretary of the Treasury in other jurisdictions. ... This article is about the British Chancellor of the Exchequer. ... The new eastern entrance to HM Treasury HM Treasury (Her/His Majestys Treasury) is the United Kingdom government department responsible for and putting into effect the UK Governments financial and economic policy. ... Fiscal Policy is the economic term which describes the behaviour of governments in raising money to fund current spending and investment for collective social purposes and for transfer payments to citizens and residents of the territory for which the government is responsible. ... An abstract business cycle The business cycle or economic cycle refers to the ups and downs seen somewhat simultaneously in most parts of an economy. ...

The justification for the Golden Rule derives from macroeconomic theory. Other things being equal, an increase in government borrowing raises the real interest rate consequently crowding out (reducing) investment because a higher rate of return is required for investment to be profitable. Unless the government uses the borrowed funds to invest in projects with a similar rate of return to private investment, capital accumulation falls, with negative consequences upon economic growth. Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. ... An interest rate is the rental price of money. ... In economics, crowding out occurs when the government expands its borrowing more to finance increased expenditure or tax cuts (i. ... Investment is a term with several closely-related meanings in finance and economics. ... In economics the rate of return on investment refers to the benefits to an investor (the profit) relative to the cost of the initial investment. ... In economics and political economy, capital accumulation is often equated with investment. ... Economic growth is the increase in the value of goods and services produced by an economy. ...

References

• Fiscal Policy in the UK (HM Treasury) (http://www.hm-treasury.gov.uk/documents/uk_economy/fiscal_policy/ukecon_fisc_index.cfm)
• HM Treasury. Reforming Britain's economic and financial policy: towards greater economic stability. Basingstoke: Palgrave, 2001. ISBN 0333966112.