Transcript Fiscal Policy - Cloudfront.net

Fiscal Policy
• Fiscal Policy - Government effort to control the
economy and maintain stable prices, full
employment, and economic growth. Fiscal
Policy deals with adjusting government spending
(G) and tax revenue (T) in order to achieve
these goals. IT is aimed at manipulating the
federal budget.
• Macro Economics = Looking how the United
States as a country deals with financial
circumstances.
Fiscal Policy and Graphing
Notes
Three Macroeconomic Goals:
-Inflation @ 3-4% or less
-Unemployment @ 5% or less
-Economic Growth @ 3-4 % or
more
Inflation
•
•
•
•
Too much money in the money supply
The value of the dollar goes down
Prices rise out of control
“purchasing power” declines – you get less
for your dollar
• Inflation usually goes up at a rate of 3% a
year
Recession
• High Unemployment
• Low economic growth
• People are not spending / in turn little
growth in businesses / little revenue forces
businesses to fire employees!
Three Possible Results of Fiscal
Policy
• Budget deficit (G>T) – ex. 4 trillion>3 trillion
• Budget surplus (G<T) –ex. 3 trillion<4 trillion
• Balanced Budget (G=T) –ex. 3 trillion=3 trillion
Two types of Fiscal Policy :
•
•
Expansionary – used to fight
recessions (problem #1)
Contractionary - used to fight
inflation (problem #2)
Expansionary Fiscal Policy
• T ____ & G ____ =
AD ____
Lower Taxes and Raise Government
Spending = What happens to the
Aggregate Demand?
Contractionary Fiscal Policy
• T ____ & G ____ = AD _____
• Raise taxes and lower Government
Spending = What will happen to
Aggregate Demand?
Recession - GRAPH IT!
AS
During
Recession,
Expansionary
Fiscal Policy will
Increase AD!
PL2
P/L1
AD2
A/D1
O/E1
O/E2
Output / Employment
You Graph It!
During Inflation,
Contractionary Fiscal
Policy will decrease
AD!
Unemployment
3 Types of Unemployment
#1. Frictional Unemployment
•“Temporarily unemployed” or being
between jobs.
•Individuals are qualified workers with
transferable skills but they aren’t
working.
Examples:
•High school or college graduates
looking for jobs.
•Individuals that were fired and areYou’re
Fired!
looking for a better job.
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3 Types of Unemployment
Seasonal Unemployment
•This is a specific type of frictional
unemployment which is due to time of
year and the nature of the job.
•These jobs will come back
Examples:
•Professional Santa Clause
Impersonators
•Construction workers in
Michigan
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3 Types of Unemployment
#2. Structural Unemployment
•Changes in the structure of the labor force
make some skills obsolete.
•Workers DO NOT have transferable skills
and these jobs will never come back.
•Workers must learn new skills to get a job.
•The permanent loss of these jobs is called
“creative destruction.” (Why?)
Examples:
•VCR repairmen
•Carriage makers
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3 Types of Unemployment
Technological Unemployment
•Type of structural unemployment
where automation and machinery
replace workers causing
unemployment
Examples:
•Auto assemblers fired as robots take
over production
• Producers of Capital Goods
(tractors) fire assemblers
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3 Types of Unemployment
#3 Cyclical Unemployment
•Unemployment that results from
economic downturns (recessions).
•As demand for goods and services falls,
demand for labor falls and workers are
fired.
Examples:
•Steel workers laid off during recessions.
•Restaurant owners fire waiters after
months of poor sales due to recession.
This
sucks!
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3 types of Unemployment
1. Frictional Unemployment – the time
needed for the employer to find a match
and the right employee.
1A. Seasonal Unemployment
2. Structural Unemployment - Job seekers
don’t have the skills needed by the
employer.
3. Cyclical Unemployment- Out of work
because of a recession.