Transcript Fiscal Policy SSEMA3

Fiscal Policy
SSEMA3
What is Fiscal Policy?
• Sometimes in a market economy it is
necessary to shift the demand curve – this
is called demand-siding
• Fiscal policy is the
governments attempt to
influence or stabilize the
economy through taxing and
government spending
Demand Side Policies
• Fiscal policies are designed to increase
employment by stimulating demand
How does the Government get
involved?
• The govt. is the only thing big enough to offset a
spiraling economy
• The govt. can undertake its own spending to offset
the spending in other parts of the economy – like
businesses
• The government can also lower taxes to increase
borrowing and push consumers to spend more
• So, if business spending was down $50billion – the
government might spend $10 billion building a dam,
$20 billion in grants to fix neighborhoods, and $20
billion in other ways
• This spending would offset the $50 billion that
businesses did not spend
• Or – instead of spending, the government
could just reduce taxes giving consumers
and businesses more purchasing power
• P. 420 read – demand side policies
Supply Side Policies
• Designed to stimulate output and lower
unemployment by increasing production NOT by
stimulating demand
• The key goal here is to reduce the governments
role in the economy
• Reducing federal agencies
• Less government spending
• Deregulating firms – allowing them to produce at
full capacity
• See p. 425 figure 15.7
Assignment
• Read the chart on page 423 – Comparing
Policies
• How are both of these policies similar?
• How are they different?