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Fiscal Policy
EQ: What’s all the
commotion about
government spending?
Review Ch 9
 Get



in groups of two :
Group member 1 – using the text, develop 4
questions from ch 9 using the following
terms: Personal Income Tax, Regressive,
Excise, and Payroll
Group member 2 - using the text, develop 4
questions from ch 9 using the following
terms: Progressive, proportional, FICA, and
sales tax
Once you have your questions developed
(and written down), trade questions and
each answer
Where does the
government spend our
money? Where do you
think?
Definition
 Fiscal
- Government’s attempt to regulate
the economy by taxation and
government spending
Two Types of Fiscal
spending
Automatic/mandatory
 Policy
that is
already in
legislation to take
affect without
additional work by
Congress
Discretionary
 Policy
that requires
a new act of
Congress to
establish.
Discretionary
EOCT Review
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Draw a Productions Possibilities Curve showing the trade-off
between guns and butter. What do “guns” and “butter”
represent?
Name 4 factors that affect demand.
Name 4 factors that affect supply.
Draw a perfectly elastic demand curve.
Draw a perfectly inelastic demand curve.
What happens at equilibrium for supply and demand?
At what point is profit maximizing level of output reached?
Minimum wage is an example of a price ___________. What
happens with a price floor?
Describe the differences between perfect competition and
monopoly.
What is the equation for total revenue?
Fiscal Policy
Expansionary Policy
 Increases
AD
 Increases GDP
 Stimulates the
economy
 Gets us out of a
recession
Contractionary
Policy
 Decreases
AD
 Decreases GDP
 Slows down the
Economy
 Prevents inflation
Review
 What
are two types of fiscal spending?
Explain
 What type of policy decisions are used
when the economy is contracting or in
recession?
 What type of policy decisions are used
when the economy is expanding or
experiencing high inflation?
Fiscal Policy Tools
Expansionary
 Cut

in Taxes
Personal/Corporate
Income
 Increase
in
Government
spending
 Deregulation of
Business
 Increase of social
programs
Contractionary
 Increase
in taxes
 Decrease in
Government
Spending
 Increase in Business
Regulations
 Cut in social
programs
 Progressive Income
Tax Structure
Critical Thinking
 Why
might the government want to
engage in expansionary fiscal policy?
 Contractionary?
Obama’s Jobs Plan
Interpret the cartoon…
1 CDs; 2 CMs
Recap Video
 http://www.youtube.com/watch?v=1qhJ
PqyJRo8
What is the objective for AD?

1.
The government cuts personal incometax rates.
 2.
The government eliminates favorable
tax treatment on long-term capital gains.
 3.
Incomes rise; as a result, people pay a
larger fraction of their income in taxes.
 4.
As a result of a recession, more families
qualify for food stamps and welfare
benefits.
What is the objective for
AD?

5. The government eliminates the deductibility
of interest expense for tax purposes.

6. The government launches a major new
space program to explore Mars.

7. The government raises Social Security taxes.

8. Corporate profits increase; as a result,
government collects more corporate income
taxes.

9. The government raises corporate income
tax rates.