Download Fiscal Policy

Monday
• EQ: What is fiscal vs. Monetary policy and
how do they impact the business cycle?
Every students needs a white
board and marker
1. What are the 3 types of economies?
2. Give examples for each.
3. What are the 4 factors for economic
growth?
4. What is a tariff?
5. What is a quota?
6. What is an embargo? Name a country we
just ended an embargo?
Every students needs a white
board and marker
1. Who came up with the idea of the
invisible hand?
2. What type of economy does the US
have?
3. What are the 3 economic questions?
4. What is scarcity?
5. When is unemployment at the highest
rate in the business cycle?
6. What are the three (4 really) types of
EQ
• What is Fiscal Policy and how does it
impact the business cycle?
• Today we will:
– Finish Walmart video and questions
– Collect HW
– Review activity
– Group activity
– Notes
– Group activity
The Government provides
goods and services
• Private goods (excludable principle)
– Example clothes, food
• Public goods (nonexcludable principle)
– Example parks, library, road
The Government handles
externalities
• Externality-an unintended side effect of an
action that affects someone not involved
• Externalities can be positive or negative
– Example: bonuses and pollution
• Government tries to make the + and
prevent the -
The Government Spends your
money
• Externality-an unintended side effect of an
action that affects someone not involved
• Externalities can be positive or negative
– Example: bonuses and pollution
• Government tries to make the + and
prevent the -
My pay stub
•
•
•
•
Gross Pay
Net Pay
My Federal Tax
My social security Tax
Different classification of Tax
• Progressive Tax- rate increases as income
increases (punishes the rich)
• Regressive Tax-rate decreases as income
increases (punishes the poor)
– Example sales tax
• Proportional-everyone pays the same
Other types of tax
•
•
•
•
•
Excise
Property
Corporate income
Estate
Gift
How the Government Spends
Mandatory spending
• Money that lawmakers are required by
existing laws to spend on certain programs
or to use on interest payments on the
national debt
Discretionary Spending
• Spending that is up to the government
officials
State and local Budgets
• Both must have a balanced budgets
(money coming in = money going out)
– Last time was when Clinton was in office
• Look at page 682 Where do states get
their money? What about local
governments?
State and local Expenditures
• List 4 examples (684)
• 4 examples (685)
National Debt
• Deficit-Spend more money than you have
• Current national Debt:
– Who do we owe?!?
• Foreign Investors/United States investors in our
bonds
Bonds
• Citizens invest in the country
Fiscal Policy
• Fiscal Policy is: the federal governments
use of taxes and spending policies to
affect overall business activity
• There are 2 different theories regarding
fiscal policy
Demand Side economics
• Demand side economics (Keynesian)
• Demand drives the economy
• In a slump, people save not spend
• To encourage spending, the government
should put more money in circulation
(taxes or fed policy)
Supply Side economics
• Supply drives economic growth.
• More money for people at the top of the
economy.
• Trickle down theory or reganomics
Fiscal Policy Review
• https://www.youtube.com/watch?v=otmgF
QHbaDo
Fiscal Policy
• Fiscal Policy – government policy toward taxing & spending.
Federal Budget
• Prepared annually by the President
• Approved by Congress
• Budget Year – October 1 – September 30
Government Spending
• Mandatory Spending – does not need annual approval.
• Discretionary Spending – needs annual approval.
Types of Taxation
• Progressive Tax – tax that takes a larger percentage from the
wealthy (ability to pay principle)
• Regressive Tax – tax that takes a larger percentage from lower
incomes (benefits received principal)
• Proportional Tax – tax that takes the same percentage from all
incomes.
GOVERNMENT BUDGET
Government Revenue - $ that government has to operate. Taxes,
fines, user fees, etc…
Government Expenditures - $ the government must spend on programs
it operates.
Balanced Budget – Revenue = Expenditures
Budget Surplus - Revenue > Expenditures
Budget Deficit - Revenue < Expenditures
National Debt – Accumulation of Budget Deficits
Federal Government Revenue
Federal Taxes
Income Tax - #1 source of government revenue. Progressive
tax on individual earning.
Payroll Tax – 2nd largest source of income
Corporate Income Tax – up to 36% of profits.
OTHER FEDERAL TAXES
Excise Tax
Estate Tax
Luxury Tax
Social Security Tax
Federal Government Expenditure
Social Security – 21.2%
National Defense – 17.4 %
Income Security – 14%
Medicare – 13.5 %
Health – 10.5%
Interest on Debt – 8.2%
Other – 15.2 %
State Government
•
Intergovernmental Revenue - $ paid from one
level of government to another. States get it
from the federal government.
•
Sales Tax – Paid by retail stores to the state
government. (passed onto consumers)
•
Income Tax – taken from workers paychecks.
•
Excise Tax – Alcohol, tobacco, & gasoline.
Local Government
REVENUE
•Intergovernmental Revenue – paid by the state
government to local governments.
• Property Tax – paid on land, houses, automobiles,
etc…
EXPENDITURES
Education
Police & Fire Protection
Water Supply
Sewage & Sanitation
FEDERAL INCOME TAX TABLE
TAX RATE
SINGLE
MARRIED
10%
$0-$8,025
$0-$16,050
15%
$8,025-$32,550
$16,050-$65,100
25%
$32,550-$78,850
$65,100-$131,450
28%
$78,850-$164,550 $131,450-$200,300
33%
$164,550-$357,700 $200,300-$357,700
35%
Over $357,700
Over $357,700
Monetary Policy
Money & Banking
•
•
•
•
•
•
•
•
•
•
Money
Fiat/Legal Tender – money that has value because a government fiat,
or order, has established it as acceptable for payment of debts.
Medium of Exchange – use of money in exchange for goods or services.
Measure of Value – use of money as a yardstick for comparing the
values of goods and services in relation to one another.
Store of Value – use of money to store purchasing power for later
use.
Banking
Interest Rate – amount of money the borrower must pay for the use
of someone else’s money. Expressed in a percentage.
Prime Rate – rate of Interest banks charge on loans to their best
business customers.
Loans – money that is given with the idea that it will be paid in return.
Collateral – something of value that a borrower lets the lender claim if
a loan is not repaid.
Credit Unions – depository institution owned & operated by its
members to provide savings accounts & low interest loans to its
members.
Savings & Loans – depository institution that, like a commercial bank,
accepts deposits & lends money.
FEDERAL RESERVE
Federal Reserve (FED) – created by Congress in 1913 to “provide for a
safer and more flexible banking and monetary system.”
•
FED – 12 Districts – each served by one bank, divided into
territories.
•
FED decisions do not have to be ratified by President or Congress.
•
Appointments to the Board of Governors – President appoints –
Congress approves.
•
FED reports to Congress on its policies.
Purpose of the FED – control nation’s money supply.
•
Tight Monetary Policy – makes credit expensive and in short supply
in an effort to slow the economy. (inflation)
•
Loose Monetary Policy – makes credit inexpensive & abundant, to
increase money in circulation. (recession)
Goal of the FED – balance the need to create long-term growth in the
economy – more jobs, consumer goods, continuing higher standard of
living – with the need to avoid inflation (higher prices).
Tools of the Federal Reserve
1.
Discount Rate – the amount of interest that commercial banks pay
the FED for borrowed funds. Banks in turn set their lending rates
for companies, individuals, home mortgages, and auto loans.
2.
Reserve Requirement – the amount of money banks must hold as
security for loans. The higher the requirement, the less money
banks have to loan. (expressed in a %)
3.
Buying & Selling Government Securities – bonds and loans the
government has received from private individuals and banks.