Unit 3: Fiscal Policy

3/06/17

Fiscal Policy 

• Fiscal Policy

- Actions by congress to stabilize the economy.

- 2 Tools to Fiscal Policy 

1. Taxes- Government can increase or decrease taxes
2. - Spending- Government can increase or decrease spending 

- Fiscal policy is used to promote our nations economic goals: full employment, price stability, and economic growth .

• Deficit, Surpluses, and Debt

*Balanced Budget

- Revenues ( bring in)= Expenditures (spend)

*Budget Deficit

- Revenues < expenditures

*Budget Surplus

- Revenues> expenditures 

*Government Debt

- Sum of all deficits- sum of all surpluses 

- The government can borrow money when it runs a budget deficit, They can borrow from...

- Individuals

-Corporations

-Financial institutions

-Foreign entities 

•  Options of fiscal Policy 

1. Discretionary fiscal policy (action by congress)
2. Expansionary fiscal policy (think deficit)
3. Contractionary fiscal policy ( think surplus)
4. Non-discretionary fiscal policy (no action)

• 3 Types of Taxes 

- Progressive Tax- Takes a larger % of income from high income groups

- Proportional Tax- Takes the % of income from all income groups 

- Regressive Taxes- Takes a larger % from low income groups ( takes more from poor people)

• Contractionary Fiscal Policy

- laws that reduce inflammation, decrease GDP and close the inflationary gap 

-  they can either decrease government spending or increase taxes or a combination of the two 

•  Expansionary fiscal policy 

- laws that reduce unemployment and increase GDP and close a recessionary gap 

- they can either increased government spending or decrease taxes are consumers or a combination of the two 

•  Automatic or built in stabilizers 

- anything that increases the government budget deficits during a recession and increase its budget surplus during installation without requiring explicit action by policymakers 

•  Transfer payments 

- welfare checks 

- food stamps 

- unemployment checks 

- corporate dividens

-  social Security 

- veterans benefits