Transcript Using Fiscal Policy

Warm Up #31
Who controls how much money is spent
on the American people and how to spend
it, and explain how they got that power?
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Class Confession
We the Senior Class of 2016 will complete ALL of
our assignments to best of our abilities and
behave appropriately in class.
We will respect all faculty, staff, substitutes,
classmates, and especially Mr. Wilcox.
We will graduate on time May 20, 2016 and
become productive citizens in society.
NEXT
SSEMA3ab
The student will explain how the government uses
fiscal policy to promote price stability, full
employment, and economic growth.
Determine and define vocabulary. Identify key terms within the
standard. Define each term.
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Scaffold understanding of the standard(s) and/or element(s).
Paraphrase the standard(s) and/or element(s). Rewrite the standard
including synonyms or brief definitions in parentheses and in a
different color following the key terms found in step 1.
The student will explain (clarify) how the
government uses fiscal (financial) policy
(strategy) to promote price stability
(constancy), full employment, and
economic growth.
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Using Fiscal Policy
What is Fiscal Policy?
SSEMA3a
Define Fiscal Policy. Explain the
government’s taxing and spending decisions.
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Using Fiscal Policy
KEY CONCEPT
• Fiscal policy uses taxes and government spending in an
effort to smooth out the peaks and troughs of the
business cycle.
WHY THE CONCEPT MATTERS
• During the 20th century, periods of rampant inflation and
economic depression caused great hardship for millions
of people in different parts of the world.
• The federal government uses a combination of spending
and taxation to reduce the impact of economic extremes.
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What is Fiscal Policy?
When the federal
government makes
decisions about taxing
and spending in order
to promote economic
growth and stability.
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Fiscal Policy Tools
KEY CONCEPTS
Fiscal—refers to government revenue,
spending, and debt
• Fiscal policy—government’s use of taxes,
spending to affect economy
• Expansionary fiscal policy—raises aggregate
demand, stimulates economy
• Contractionary fiscal policy—reduces
aggregate demand, slows economy
•
– Federal government’s tools to influence economy is
taxation and spending
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Fiscal Policy Tools
Discretionary Fiscal Policy p. 446
•
Discretionary fiscal policy—actions government takes
to stabilize the economy
– involve choices government makes about taxes or
spending
– Congress must enact (authorize) legislation for policies
to be implemented
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Fiscal Policy Tools
Automatic Stabilizers p. 447
• Automatic stabilizers—fiscal policy features that work
automatically
– control aggregate demand in expansionary or
contractionary manner
• Public transfer payment programs and progressive
income taxes
– increase incomes and reduce impact of a recession
– reduce extra income entering economy, slow growth,
check inflation
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The Purpose of Fiscal Policy
KEY CONCEPTS
• Expansionary fiscal policy designed to help a
weak economy grow
• Contractionary fiscal policy used to slow down
a growing economy
–purpose is to control inflation
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The Purpose of Fiscal Policy
Policy 1: Expansionary Fiscal Policy
• Expansionary policy increases aggregate demand so
economy can grow; banks lend more money
• Increased spending on public projects done by hiring
private firms
– jobs created; workers spend on goods and services
• Lower personal, corporate income taxes leaves more
money available
– increase in demand for products, saving, capital and
labor investment
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The Purpose of Fiscal Policy
Policy 2: Contractionary Fiscal Policy
• Too rapid economic growth leads to demand-pull
inflation; interest rates rise
• Spending cuts mean less income for private firms
working for government
– aggregate demand drops; production drops; inflation is
controlled
• Higher taxes reduce disposable income
– decreases consumer spending, production; workers
laid off; prices drop
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Limitations of Fiscal Policy
KEY CONCEPTS
• Fiscal policy intended to
–reduce economic slowdowns that result in
unemployment
–curb inflation
• Has significant limitations
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How does increasing or decreasing taxes
promote economic growth and stability?
Decrease income taxes
• Worker’s take a larger percentage of their
paychecks home, more money to spend,
increases GDP and may cause economic
growth or inflation.
Increase income taxes
• Workers’ take a smaller percentage of their
paychecks home, less money to spend,
decreases GDP and may cause a recession
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How does the government get money to spend
on the American people?
Taxes
National defense, public education, highway construction,
police, fire protection, garbage collection, public facilities, and
any welfare programs.
More government spending on programs, there will
be an increase on taxes!
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Show What You Know!
Georgia Milestone Questions
What are the two basic tools that the federal government
uses to influence the economy?
Entitlements and spending
Entitlements and wages
Taxing and spending
Taxation and wages
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Show What You Know!
Georgia Milestone Questions
How does an aggregate demand graph
show the results of expansionary fiscal policy?
Aggregate demand curve shifts to the left
Aggregate demand curve shifts to the right
Aggregate demand curve shifts vertical
None of these
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Show What You Know!
Georgia Milestone Questions
Assume an economy is having high unemployment and
low GDP. Which fiscal policy would be most appropriate
to correct this situation?
Increase the discount rate
Decrease government spending
Decrease taxes
Increase the reserve requirement
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Show What You Know!
Georgia Milestone Questions
Assume the U.S. Government’s most recent fiscal policy
slowly caused the economy to speed up and enter an
expansion. Most likely, the Government
Increased taxes
Increased the reserve requirement
Decreased taxes
Decreased the discount rate
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Show What You Know!
Georgia Milestone Questions
If the U.S. economy was in a recession, which fiscal
policy would be most appropriate to get out of the
recession?
Decrease taxes, people have more disposable income
Buy bonds on the open market, the money supply will
increase
Raise the reserve requirement, banks will have more
money to loan
Decrease government spending, the citizens will have
more money to spend
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The End
Any Questions?
Any Concerns?
Any Comments?
Any Questions?
Any Concerns?
Any Comments?
Any Questions?
Any Concerns?
Any Comments?
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Warm Up #32
On the projector daily transparencies
TT52.
Deficits and the National Debt.
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Class Confession
We the Senior Class of 2016 will complete ALL of
our assignments to best of our abilities and
behave appropriately in class.
We will respect all faculty, staff, substitutes,
classmates, and especially Mr. Wilcox.
We will graduate on time May 20, 2016 and
become productive citizens in society.
NEXT
SSEMA1f
The student will be able to describe the
difference between the national debt and
government deficits.
Determine and define vocabulary. Identify key terms within the
standard. Define each term.
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
NEXT
Scaffold understanding of the standard(s) and/or element(s).
Paraphrase the standard(s) and/or element(s). Rewrite the standard
including synonyms or brief definitions in parentheses and in a
different color following the key terms found in step 1.
Describe (Label) the difference between he
national debt (obligation) and government
deficits(shortfalls).
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Using Fiscal Policy
Deficits and the National Debt
SSEMA3
Explain how government budget deficits or
surpluses impact national debt.
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Who makes a budget for the American people?
The president and
Congress
• They budget the money
from all the taxes that
the government collects.
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Deficits and the National Debt
The Federal Deficit and Debt
KEY CONCEPTS
• All levels of government struggle to achieve balanced
budget:
– Budget surplus occurs when government takes in
more than it spends
– Budget deficit occurs when government spends more
than it takes in
– Deficit spending—spending more than revenues for a
specific budgeted year
– National debt—the total amount of money the
government owes
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Think Pair Share
What happens if the government
collects more than it spends?
Budget Surplus
• The government collects more than it spends.
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Budget Deficit
When the government spends more than
it collects.
The government borrows money and adds to
the National Debt.
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The Federal Deficit and Debt
Four main reasons for deficit spending:
— 1. National emergencies usually require
massive spending beyond normal budget
— 2. Building public goods and services is
expensive, work takes years
— 3. Public projects to stimulate, stabilize weak
economy need large sums
— 4. Entitlement programs that people depend
on are expensive
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National Debt
The total amount of
money owed by the
federal government.
Much of our taxes goes
toward the INTEREST on
the debt instead of goods
and services.
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The National Debt
KEY CONCEPTS
• Government owes bond holders the amount of the bond
plus interest
• Also borrows from government trust funds—money held
for specific future purpose
– trust fund surpluses invested in bonds until programs
need the funds
– some economists do not think moving funds within
government is debt
– no burden to current economy because current budget
does not pay for it
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The National Debt
The Effect of the Debt on the Economy
• If government spending stimulates economy, jobs and
public goods are created
• If government outbids private sector, pays higher bond
interest rates
– crowding-out effect—money leaves private sector,
interest rates rise
• Constant borrowing increases total interest and taxes to
service debt
– higher taxes decrease consumer spending and
business investment
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Closure Activity #28
Setting Sights on the Deficit p. 469
Thinking Economically.
1. How does the Bush administration plan to cut
the deficit by half in three years?
2. What other steps might it take to control the
deficit?
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Show What You Know!
Georgia Milestone Questions
If the government spends more than it takes in, what is
that called?
Balanced budget
Budget deficit
Budget surplus
Discretionary budget
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Show What You Know!
Georgia Milestone Questions
National deficits are different than the national debt
because
Only deficits vary from year to year
Deficits occur when expenditures exceed revenues for 1
fiscal year
Debts are consistently repaid and deficits can not be
Deficits are calculated using all previous deficits
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Show What You Know!
Georgia Milestone Questions
A budget surplus means that
Federal Reserve spending is higher than Government
spending
Government spending is higher than the Federal Reserve
spending
Government expenditures are greater than government
revenues
Government revenues are greater than government
expenditures
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Show What You Know!
Georgia Milestone Questions
Adding everything the U.S. Government owes calculates
the
National debt
Unemployment rate
Balance of payments
National deficit
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The End.
Any Questions?
Any Concerns?
Any Comments?
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Ch. 15 Test Thursday!
Fiscal
Fiscal Policy
Expansionary fiscal policy
Contractionary fiscal policy
Discretionary fiscal policy
Automatic stabilizers
National debt
Budget surplus
Budget deficit
Deficit spending
Crowding out effect
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