Download What is fiscal policy? - Ms. Edlund`s Social Studies Classes

BELL RINGER
If the unemployment rate was rising, what
type of monetary policy would the Federal
Reserve implement?
JOHN MAYNARD KEYNES
British economist who had a new idea of how to
minimize the fluctuations of the business cycle.
1. What are the similarities and differences between the
Great Depression of the 1930s and the crisis that began
in 2008?
2. According to Keynes, what is the “paradox of thrift”? Do
you think it is true?
3. What was Keynes, “big idea”? Do you think it was the
right remedy for ending the Great Depression? Why? Do
you think it is the right remedy today for ending the Great
Recession? Why?
EMPLOYMENT ACT OF 1946
“The Congress hereby declares that it
is the continuing policy of the Federal
Government to use all practicable
means … to promote maximum
employment, production, and
purchasing power.”
FISCAL POLICY
Changes government makes in spending or
taxation to achieve particular economic goals
FISCAL POLICY
Expansionary Fiscal Policy
• Increase in Federal spending
• Decrease in Federal taxes
• Objective is to reduce the
unemployment rate
Contractionary Fiscal Policy
• Decrease in Federal spending
• Increase in Federal taxes
• Objective is to reduce inflationary
pressures
EXPANSIONARY OR
CONTRACTIONARY?
The economy is suffering from its worst
slowdown in 30 years. Unemployment has
reached 10%.
The annual inflation rate is slowing and
now stands at 2.5%.
The unemployment rate has fallen to the
lowest level in a decade, 2.3%. But inflation
has risen to 8%.
The unemployment rate remains steady at
11%.
The annual inflation rate is 8.5% and rising.
EXPANSIONARY
FISCAL POLICY
The Government increases spending and/or reduces taxes.
More government spending means more spending in the
economy.
Increased spending means firms are selling and producing
more goods.
If firms are selling and producing more goods, they will hire
more workers.
CONTRACTIONARY
FISCAL POLICY
Government decreases spending and/or
increases taxes.
This leads to less overall spending in
the economy.
Less spending means that firms will sell
fewer goods.
If they sell fewer goods, firms will have a
surplus and prices will go down.
BELL RINGER
What is the Employment Act of 1946?
“The Congress hereby declares that it is the continuing
policy of the Federal Government to use all practicable
means … to promote maximum employment, production,
and purchasing power.”
AUTOMATIC
STABILIZERS
Fiscal policies that, without any new action by
Congress or the President, change gov’t spending
and taxes.
• Examples
• Unemployment compensation
• Reduction in taxes (progressive tax rate)
OTHER ISSUES WITH
FISCAL POLICY
Recognition lag
• The time it takes policymakers to recognize a problem in the
economy
Administrative lag
• The time it takes to change fiscal policy
Operational lag
• The time between adopting new policies and the policies having
an effect
Crowding out
• The situation when increases in government spending lead to
reductions in private spending
Crowding in
• The situation when decreases in government spending lead to
increases in private spending
MONETARY POLICY
Helps stabilize the economy even when fiscal
policy makers can’t
Changes the Fed makes in the money supply
• Discount rate
• Reserve requirement
• Open market operations
Monetary and Fiscal Policy Review – due tomorrow
BELL RINGER
Why can it be difficult to implement fiscal
policy?
BELL RINGER
What are some concerns you have about
our growing national debt?
DEFICIT VS. DEBT
Deficit – occurs when the government
spends more money than it collects in
taxes in a year.
Debt – total amount of money the
government owes. It has been
accumulating since the beginning of our
nation’s history.
Surplus – occurs when the government
spends less money than it collects in
taxes in a year.
Source: Congressional Budget Office
US National Debt
http://www.usdebtclock.org/
A GUIDE TO THE FEDERAL BUDGET
DEFICIT AND NATIONAL DEBT
1. What is the national debt? How is the public
debt different than the national debt?
2. Why should Americans worry about the
growing national debt?
3. What are the differences between
“discretionary” and “entitlement” spending?
Which kind of spending do you think would be
hardest for Congress and the president to cut?
Why?
THE FEDERAL BUDGET
TEN TRILLION AND
COUNTING
How did we get into our current situation of
massive budget deficit and a national
debt that is growing at an unprecedented
rate?
BELL RINGER
What was one of the “politically smart”
economic policies President Bush
enacted?
BELL RINGER
What are the three macroeconomic
indicators that are used to measure the
health of our nation’s economy?
UNIT 4 TEST
Thursday
45 pts
10 Vocabulary Matching
20 Multiple Choice
6 Essays (you choose 3)
BELL RINGER
What are the three tools of monetary policy
and the two tools of fiscal policy?
AFTER THE TEST:
Pick up a copy of Globalization at Home
Due Monday, January 5th