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Fiscal Policy Introduction to Fiscal Policy Evaluating Fiscal Policy Free to share, print, make copies and changes. Get yours at www. boundless. com
Fiscal Policy > Introduction to Fiscal Policy • Defining Fiscal Policy • How Fiscal Policy Relates to the AD-AS Model • Expansionary Versus Contractionary Fiscal Policy • Fiscal Levers: Spending and Taxation • How Fiscal Policy Can Impact GDP • Fiscal Policy and the Multiplier Free to share, print, make copies and changes. Get yours at www. boundless. com/economics/textbooks/boundless-economics-textbook/fiscal-policy-26/introduction-to-fiscal-policy-112/
Fiscal Policy > Evaluating Fiscal Policy • Automatic Stabilizers Versus Discretionary Policy • The Role of the Federal Budget • Arguments for and Against Balancing the Budget • Long-Run Implications of Fiscal Policy • Problems of Long-Run Government Debt • Limits of Fiscal Policy • Difficulty in Getting the Timing Right • Crowding-Out Effect • Evaluating the Recent United States Stimulus Package Free to share, print, make copies and changes. Get yours at www. boundless. com/economics/textbooks/boundless-economics-textbook/fiscal-policy-26/evaluating-fiscal-policy-113/
Appendix Free to share, print, make copies and changes. Get yours at www. boundless. com
Fiscal Policy Key terms • appropriations bill A legislative motion that authorizes the government to spend money. • automatic stabilizer A budget policy that automatically changes to stabilize fluctuations in GDP. • balanced budget A (usually government) budget in which income and expenditure are equal over a set period of time. • cyclically balanced budget Occurs when the government runs a deficit during recessions and lean years but a surplus during periods of significant growth. • discretionary fiscal policy A fiscal policy achieved through government intervention, as opposed to automatic stabilizers. • discretionary policy Actions taken in response to changes in the economy. These acts do not follow a strict set of rules, rather, they use subjective judgment to treat each situation in unique manner. • fiscal multiplier The ratio of a change in national income to the change in government spending that causes it. • fiscal policy Government policy that attempts to influence the direction of the economy through changes in government spending or taxes. Free to share, print, make copies and changes. Get yours at www. boundless. com
Fiscal Policy • inflation An increase in the general level of prices or in the cost of living. • infrastructure The basic facilities, services and installations needed for the functioning of a community or society • interest rate The percentage of an amount of money charged for its use per some period of time (often a year). • monetary policy The process by which the central bank, or monetary authority manages the supply of money, or trading in foreign exchange markets. • multiplier A ratio used to estimate total economic effect for a variety of economic activities. • quarter Related to a three-month term, a quarter of a year. • Tax multiplier The change in aggregate demand caused by a change in taxation levels. Free to share, print, make copies and changes. Get yours at www. boundless. com
Fiscal Policy Times of Recession In times of recession, the government uses expansionary fiscal policy to increase the level of economic activity and increase employment. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Bowery men waiting for bread in bread line, New York City, Bain Collection. " Public domain https: //commons. wikimedia. org/wiki/File: Bowery_men_waiting_for_bread_in_bread_line, _New_York_City, _Bain_Collection. jpg View on Boundless. com
Fiscal Policy Expansionary and Contractionary Fiscal Policy Expansionary policy shifts the AD curve to the right, while contractionary policy shifts it to the left. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Contractionary and expansionary fiscal policy. " CC BY-SA https: //commons. wikimedia. org/wiki/File: Contractionary_and_expansionary_fiscal_policy. jpg View on Boundless. com
Fiscal Policy Crowding out Chart When crowding-out occurs, the Investment-Savings (IS) curve moves to the right, causing higher interest rates (i) and expansion in the "real" economy (real GDP, or Y). LM stands for Liquidity Preference - Money Supply. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikipedia. "Islm. " GNU FDL http: //en. wikipedia. org/wiki/File: Islm. svg View on Boundless. com
Fiscal Policy Congress The U. S. Congress is responsible for passing the Federal Budget. If it cannot pass a Federal Budget, it must pass appropriation bills as a "stop gap. " Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "State of the Union. " Public domain http: //commons. wikimedia. org/wiki/File: State_of_the_Union. jpg View on Boundless. com
Fiscal Policy Highway Construction The government can implement expansionary fiscal policy through increased spending, such as paying for the construction of new highways. Free to share, print, make copies and changes. Get yours at www. boundless. com Flickr. "All sizes | East Fork Bitterroot Road Recovery Act Project | Flickr - Photo Sharing!. " CC BY http: //www. flickr. com/photos/fsnorthernregion/5187895366/sizes/o/in/photostream/ View on Boundless. com
Fiscal Policy Multiplier Effect The multiplier effect determines the extent to which fiscal policy shifts the aggregate demand curve and impacts output. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Contractionary and expansionary fiscal policy. " CC BY-SA https: //commons. wikimedia. org/wiki/File: Contractionary_and_expansionary_fiscal_policy. jpg View on Boundless. com
Fiscal Policy John Maynard Keynes founded the Keynesian school, which promotes balanced governmental budgets over the course of the business cycle as opposed to annual balanced budgets. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Keynes. " Public domain http: //commons. wikimedia. org/wiki/File: Keynes. jpg View on Boundless. com
Fiscal Policy Government debt Publicly issued debt is one means governments use to fund expansionary fiscal policy. The problem with debt is that it needs to be paid off with future revenues, which curtails future government spending. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Statue of Liberty 1917 poster. " Public domain http: //commons. wikimedia. org/wiki/File: Statue_of_Liberty_1917_poster. jpg View on Boundless. com
Fiscal Policy American political divide There are two different approaches to fiscal policy in the US. Broadly, Democrats tend to be more Keynesian than Republicans. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "U. S. party affiliation. " Public domain http: //commons. wikimedia. org/wiki/File: U. S. _party_affiliation. svg View on Boundless. com
Fiscal Policy Composition of Stimulus Tax incentives — includes $15 B for Infrastructure and Science, $61 B for Protecting the Vulnerable, $25 B for Education and Training and $22 B for Energy, so total funds are $126 B for Infrastructure and Science, $142 B for Protecting the Vulnerable, $78 B for Education and Training, and $65 B for Energy. State and Local Fiscal Relief — Prevents state and local cuts to health and education programs and state and local tax increases. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikipedia. "Investmentbubble. " CC BY http: //en. wikipedia. org/wiki/File: Investmentbubble. jpg View on Boundless. com
Fiscal Policy WIN If a country pursues and expansionary fiscal policy, high inflation becomes a concern. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. ""WIN"sign. " Public domain http: //commons. wikimedia. org/wiki/File: %22 WIN%22 sign. JPG View on Boundless. com
Fiscal Policy President Coolidge Signing a Bill into Law It can take many months before Congress can pass a bill that would address current economic fluctuations. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Coolidge bill signing. " Public domain http: //commons. wikimedia. org/wiki/File: Coolidge_bill_signing. jpg View on Boundless. com
Fiscal Policy Tax Form 1040 Taxes are a part of the automatic stabilizers a country uses to minimize fluctuations in their real GDP. During boom times when the economy is doing well, people earn more income and this translates to higher tax revenues for the government, lowering the budget deficit. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Form 1040, 2005. " CC BY-SA http: //commons. wikimedia. org/wiki/File: Form_1040, _2005. jpg View on Boundless. com
Fiscal Policy Spending and Saving The tax multiplier is smaller than the government expenditure multiplier because some of the increase in disposable income that results from lower taxes is not just consumed, but saved. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "1970 sgrocerystore. " CC BY http: //commons. wikimedia. org/wiki/File: 1970 sgrocerystore. jpg View on Boundless. com
Fiscal Policy Counter-cyclical Fiscal Policies Keynesian economists advocate counter-cyclical fiscal policies. This means increased spending and lower taxes during recessions and lower spending and higher taxes during economic boom times. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Contractionary and expansionary fiscal policy. " CC BY-SA https: //commons. wikimedia. org/wiki/File: Contractionary_and_expansionary_fiscal_policy. jpg View on Boundless. com
Fiscal Policy Fiscal Multiplier Example The money spent on construction of a plant becomes wages to builders. The builders will have more disposable income, increasing their consumption and the aggregate demand. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikimedia. "Construction Workers. " CC BY http: //commons. wikimedia. org/wiki/File: Construction_Workers. jpg View on Boundless. com
Fiscal Policy WPA The Works Progress Administration (WPA) was part of the New Deal. The WPA is an example of a Depression-era discretionary policy meant to reduce unemployment by providing jobs for the unemployed. Free to share, print, make copies and changes. Get yours at www. boundless. com Wikipedia. "Usa work program. " Public domain http: //en. wikipedia. org/wiki/File: Usa_work_program. svg View on Boundless. com
Fiscal Policy Attribution • Wiktionary. "fiscal policy. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/fiscal_policy • Wikipedia. "Fiscal policy. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Fiscal_policy • Wiktionary. "fiscal policy. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/fiscal_policy • Wikispaces. "mreape - UNIT 3 National Income and Price Determination. " CC BY-SA http: //mreape. wikispaces. com/UNIT+3+National+Income+and+Price+Determination • Wikispaces. "Mc. Henry's AP Wiki - Fiscal Policy. " CC BY-SA http: //mchenry. wikispaces. com/Fiscal+Policy • Wiktionary. "multiplier. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/multiplier • Wikipedia. "Keynesian economics. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Keynesian_economics%23 Active_fiscal_policy • Wikispaces. "econ 101 -powers-sectionc - Fiscal Policy, Deficit, and Surplus. " CC BY-SA http: //econ 101 -powerssectionc. wikispaces. com/Fiscal+Policy, +Deficit, +and+Surplus • Wikispaces. "econ 101 -powers - Discretionary and Automatic Fiscal Policy. " CC BY-SA http: //econ 101 powers. wikispaces. com/Discretionary+and+Automatic+Fiscal+Policy • Wikipedia. "Macroeconomics. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Macroeconomics • Boundless Learning. "Boundless. " CC BY-SA 3. 0 http: //www. boundless. com//economics/definition/tax-multiplier Free to share, print, make-copies and changes. Get yours at www. boundless. com • Wikispaces. "HFEcon - Spending and Tax Multiplier Practice--Answer Key. docx Detail. " CC BY-SA
Fiscal Policy • Wikispaces. "HFEcon - Spending and Tax Multiplier Practice--Answer Key. docx - Detail. " CC BY-SA http: //hfecon. wikispaces. com/file/detail/Spending+and+Tax+Multiplier+Practice--Answer+Key. docx • Wikispaces. "jiryih - CFA Session 6. " CC BY-SA http: //jiryih. wikispaces. com/CFA+Session+6 • Wikispaces. "Moeller - Unit Three. " CC BY-SA http: //moeller. wikispaces. com/Unit+Three • Wikipedia. "fiscal multiplier. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/fiscal%20 multiplier • Wikipedia. "Fiscal multiplier. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Fiscal_multiplier • Wikipedia. "fiscal multiplier. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/fiscal%20 multiplier • Wikispaces. "nrapmacro - Module 21. ppt - Detail. " CC BY-SA http: //nrapmacro. wikispaces. com/file/detail/Module 21. ppt • Wikipedia. "Multiplier (economics). " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Multiplier_(economics) • Boundless Learning. "Boundless. " CC BY-SA 3. 0 http: //www. boundless. com//economics/definition/automatic-stabilizer • Wikipedia. "fiscal multiplier. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/fiscal%20 multiplier • Wikipedia. "Fiscal multiplier. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Fiscal_multiplier • Wikipedia. "Automatic stabilizer. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Automatic_stabilizer • Boundless Learning. "Boundless. " CC BY-SA 3. 0 http: //www. boundless. com//economics/definition/automatic-stabilizer • Wikipedia. "discretionary policy. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/discretionary%20 policy • Wikipedia. "Automatic stabilizer. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Automatic_stabilizer • Wikipedia. "Discretionary policy. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Discretionary_policy • Wikipedia. "appropriations bill. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/appropriations%20 bill • Wikipedia. "Federal budget of the United States. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Federal_budget_of_the_United_States%23 Contemporary_issues_and_debates Free to share, print, make copies and changes. Get yours at www. boundless. com
Fiscal Policy • Wikipedia. "United States federal budget. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/United_States_federal_budget • Wiktionary. "balanced budget. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/balanced_budget • Wikipedia. "Balanced budget. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Balanced_budget%23 United_States • Wikipedia. "Balanced budget. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Balanced_budget • Wiktionary. "inflation. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/inflation • Wikipedia. "Fiscal policy. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Fiscal_policy%23 Economic_effects_of_fiscal_policy • Wikipedia. "Fiscal policy. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Fiscal_policy • Wikipedia. "cyclically balanced budget. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/cyclically%20 balanced%20 budget • Wikipedia. "Credit rating. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Credit_rating • Wikipedia. "Deficit spending. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Deficit_spending • Wikipedia. "Balanced budget. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Balanced_budget%23 Economic_views • Wikipedia. "Deficit spending. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Deficit_spending • Wikipedia. "Government budget balance. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Government_budget_balance • Wikipedia. "Balanced budget. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Balanced_budget • Wiktionary. "monetary policy. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/monetary_policy • Wikipedia. "Interaction between monetary and fiscal policies. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Interaction_between_monetary_and_fiscal_policies • Wikipedia. "Deficit spending. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Deficit_spending%23 Controversy • Wikipedia. "Fiscal policy. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Fiscal_policy • Wiktionary. "discretionary fiscal policy. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/discretionary_fiscal_policy Free to share, print, make copies and changes. Get yours at www. boundless. com
Fiscal Policy • Wikipedia. "Discretionary policy. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Discretionary_policy • Wikipedia. "Recession. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Recession%23 Definition • Wikipedia. "Discretionary policy. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Discretionary_policy • Wikipedia. "Economic data. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Economic_data • Wiktionary. "interest rate. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/interest_rate • Wikipedia. "Crowding out (economics). " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/Crowding_out_(economics) • Wiktionary. "infrastructure. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/infrastructure • Wiktionary. "quarter. " CC BY-SA 3. 0 http: //en. wiktionary. org/wiki/quarter • Wikipedia. "American Recovery and Reinvestment Act of 2009. " CC BY-SA 3. 0 http: //en. wikipedia. org/wiki/American_Recovery_and_Reinvestment_Act_of_2009%23 Provisions_of_the_Act Free to share, print, make copies and changes. Get yours at www. boundless. com
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