Transcript Unit 3 Fiscal Policy ppt

Fiscal Policy
Dictionary: of or pertaining to
public (govt.) finances. Pertaining
to financial matters in general.
Using taxes and government
spending to influence the economy
Who controls fiscal policy?
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Each year the president and his advisors
create a federal budget.
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Uses the Office of Management and Budget –
gathers budget information for all federal
agencies
Pools information into one collective national
budget
OMB presents budget to president, who can
approve or make recommendations for change
Who controls fiscal policy?
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Congress must approve that budget.
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Determines how much tax revenue the
government will bring in and how much money
they will spend on programs.
“The purse and the sword must not be in the
same hands” – George Mason
Can create conflict – different members have
different fiscal and political agendas
Students – answer in notes:
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How will raising taxes affect the economy?
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1. What is the impact on consumption?
2. What is the impact on production (GDP)?
3. What is the impact on employment?
4. What is the impact on the government’s budget?
5. Overall, did the economy expand or contract?
Students – answer in notes
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How will reducing taxes impact the
economy?
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1. What is the impact on consumption?
2. What is the impact on production (GDP)?
3. What is the impact on employment?
4. What is the impact on the government’s budget?
5. Overall, did the economy expand or contract?
Students – answer in notes
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How will an increase in government
spending affect the economy?
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1. What is the impact on consumption?
2. What is the impact on production (GDP)?
3. What is the impact on employment?
4. What is the impact on the government’s budget?
5. Overall, did the economy expand or contract?
Students – answer in notes
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How will a decrease in government
spending affect the economy?
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1. What is the impact on consumption?
2. What is the impact on production (GDP)?
3. What is the impact on employment?
4. What is the impact on the government’s budget?
5. Overall, did the economy expand or contract?
It’s a matter of perspective
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GDP- what is good / bad?
Hope to see …..growth per year?
Unemployment – what is good/bad?
Natural Rate (what is expected even if the
economy were at full production) = ?
Inflation – what is good/bad?
Expect to see ….?
DISCUSSION : If you were in control of Congress,
what would you do if ……Answer in notes
1.
GDP increased by 6% last year, unemployment was at 4%,
and inflation was at 10%? (What and Why)
2. A. GDP fell 3% last year, unemployment was at 9% and
inflation was at only 1%? (What and Why)
2 B. What if the government had $16 Trillion dollars in debt at
the same time as the conditions in part A? Would your
answer to #2A still sound good?
Discussion – answer in notes
3. If the country was attacked and needed to go
to war, what fiscal tools would the government
use to pay for the war?
4. Why is it rare for politicians to practice
Contractionary Fiscal Policy even when there
is a need to do so?