Unit 3
3-7-17
Fiscal Policy
How govt stabilize eco.
- Actions by congress to stabilize economy
Fiscal Policy
- changes in expenditures or tax revenues of federal govt
- 2 tools of fiscal polic
- taxes govt can increase or decrease taxes
- spending govt can increase or decrease spending
- Fiscal policy is encoded to promote our nations economic goals: full employment, price stability, economic growth
Deficit, Surplus, Dept
- Balanced budget
- revenues = expenditures
- Budget deficit
- revenues< expenditures
- Budget Surplus
- revenue> expenditures
- govt debt
- sum of all deficits - sum of all surpluses
- Govt must borrow money when it runs a budget deficit
- Govt borrows from
- individuals, corporations, financial institution, foreign entities of foreign
- Discretionary Fiscal Policy(action)
- expansionary fiscal policy- think deficit
- constractionary fiscal policy- think surplus
- Non Discretionary Fiscal Policy (no action)
3 types of taxes
- 1- progressive taxes- takes a larger percent of income from high income group
- ex: current federal income tax system
- 2- proportional taxes (flat rate)- takes same % of income from all income groups
- 3- Regressive tax- takes larger percentage from low income groups
Contractionary Fiscal Policy
- laws that reduce inflation, decrease GDP
- decrease govt spending
- tax increase
- combinations of the two
Expansionary FP
- law that reduce unemployment and increases GDP
- increase govt spending
- decrease tax on consumers
- combinations of the two
Automatic/Built in stabilizer
- Anything that increases govt budget deficit during recession and increases its budget surplus during inflation without requiring explicit action by policymakers
- 1- transfer payments
- welfare checks, food stamps, unemployment checks
- 2- progressive income tax
- automatic stabilizers take 33-50% out
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ReplyDeleteHello Duy!
ReplyDeleteI think you should elaborate futher on Expansionary and Contractionary fiscal policy. You can say that to fight a recession, you would use expantionary fiscal policy. You can also say that it leads to a budget deficit. When fighting inflation, you would use contrationary policy and this would lead to a budget surplus.
Je m'appelle francais bonjour au revoir parlez-vous,
Kenneth Nguyen
In addition to automatic stabilizers you could state: that the automatic stabilizers may be called the automatic pilot of our economy, not very well suited for takeoffs and landings, but fine for the smooth part of the flight. But when the going gets rough, the economy must use manual controls.
ReplyDeleteAs simple as the introductory photo of this post is, I feel like it introduced the topic very well. It would help if you maybe linked a video about expansionary and contractionary fiscal policy so anyone who is still confused could have a better understanding between the two. Perhaps add more examples so readers that may not fully understand/were not present could understand the notes more.
ReplyDelete