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Warm Up: True or False (If FALSE, make it into a true statement by changing the word(s) in yellow) 1. To correct an inflationary problem in the U.S., the AD curve needs to shift to the __________. 2. Using an expansionary fiscal policy results in interest rates _________. 3. Supporters of fiscal policy believe that inflation can be reduced by __________ ________________. 4. Keynes believed that spending money was the key to controlling the economy during a _____________. 5. Full employment implies that unemployment is ________________. Warm-Up 1)What are the 3 macro goals of the U.S. economy? 2) What problems may result from too much inflati 3) What problems may result from a recession Two Major Problems That Can Occur in Our Economy [extremes of the __________________): • __________/__________: - Low GDP/high unemployment • __________: - Prices increasing too quickly HOW DO YOU FIX THEM??? ____________ Definition: • Fiscal Policy can be defined as what the government does with _________ or __________ ___________ to stabilize the economy during periods of recession or inflation. • What the ____ __________ does to try and ___________ ____ ___________. What are the 2 tools of fiscal Policy? 1) ________________ 2) ________________ Three Possible Results of Fiscal Policy: 1. _______ ________: government spending _________ than tax revenue 2. _______ _________: government spending is ______ than tax revenue 3. _________ _______: government spending __________ to tax revenue Create a Tree Map Three Possible Results of Fiscal Policy How Fiscal Policy Started… • Before the Great Depression, the U.S. adopted a policy of _________-______. (___ _____________ _____________) • But with the economy in such an economic crisis during the ________, citizens cried out for the gov’t to take ________ and play a more _______ role in the ___________ Why do you think citizens wanted the government to become more “ACTIVE”? ________________________ ________________________ ________________________ ________________________ John Maynard Keynes • He was __________ economic guru during the ________ ___________. • He advised the president that the only way to bring the economy out of a __________ was for the __________ to play a more ______ role in the economy (______ ________). • Therefore, Keynes is noted for being the ________ ___ _________ _________. • Fiscal Policy greatly __________ the role of the government in the ________ _______. In what way is Keynes’ advice to FDR different from the policy of laissez-faire? ________________________ ________________________ ________________________ ________________________ Problem: ___________/___________ • SOLUTION: – The government pursues an _____________ fiscal policy: • ___________ government spending • ___________ taxes • The intention is to _________ GDP and _________ unemployment =___________________ How does increasing government spending and/or lowering taxes help fight the problem of a recession??? ________________________ ________________________ ________________________ ________________________ Problem: ___________/___________ • SOLUTION: – The government pursues an _____________ fiscal policy: • ___________ government spending • ___________ taxes • The intention is to _________ GDP and _________ unemployment =___________________ How does decreasing government spending and/or increasing taxes help to fight the problem of inflation??? ________________________ ________________________ ________________________ ________________________ Wrap-Up 1. What are the 2 extremes of the business cycle? 2. What type of fiscal policy should be pursued to fight a recession? 3. What type of fiscal policy should be pursued to fight inflation? 4. Who’s the founder of Fiscal Policy? 5. What does laissez-faire mean?