Download Fiscal policy

HEALTH of an ECONOMY
PIE
Production = P
Income = I
Employment = E
The Business Cycle
• The term business cycle refers to economywide fluctuations in production, trade and
economic activity in general over several
months or years in an economy organized on
free-enterprise principles.
• The business cycle is the upward and
downward movements of levels of GDP (gross
domestic product) and refers to the period of
expansions and contractions in the level of
economic activities around its long-term
growth trend.
The Business Cycle
Recovery
Peak
Expansion Boom
Depression
Recession Trough
Economic TOOLS
Fiscal Policy
Monetary Policy
FISCAL POLICY
Fiscal policy is the use of
government revenue collection
(taxation) and expenditure
(spending) to influence the
economy.
The two main instruments of fiscal
policy are changes in the level and
composition of taxation and
government spending in various
sectors.
FISCAL POLICY
Expansionary fiscal policy
involves government
spending exceeding tax
revenue, and is usually
undertaken during
recessions.
FISCAL POLICY
Contractionary fiscal
policy occurs when
government spending is
lower than tax revenue,
and is usually undertaken
to pay down government
debt.
MONETARY POLICY
Monetary policy is the process by
which the monetary authority of a
country controls the supply of
money, often targeting a rate of
INTEREST for the purpose of
promoting economic growth and
stability.
MONETARY POLICY
• An EXPANSIONARY monetary policy
increases the total supply of money
in the economy more rapidly than
usual
• Expansionary policy is traditionally
used to try to combat
unemployment in a recession by
lowering INTEREST RATES in the
hope that easy credit will entice
businesses into expanding.
MONETARY POLICY
• A CONTRACTIONARY monetary
policy expands the money supply
more slowly than usual or even
shrinks it
• Contractionary policy is intended to
slow inflation in order to avoid the
resulting distortions and
deterioration of asset values.
President Herbert Hoover
NEW DEAL PROGRAMS
•Relief
•Recovery
•Reform
•President Roosevelt - 100 Days
•FDR and Alphabet Soup
NEW DEAL PROGRAMS
•Relief - Immediate action
taken to halt the economies
deterioration.
•Recovery - "Pump - Priming"
Temporary programs to restart
the flow of consumer demand.
•Reform - Permanent programs
to avoid another depression
and insure citizens against
economic disasters.