The 2008 Bailout and Fiscal Policy Remember Business

The 2008 Bailout and Fiscal Policy

Remember • Business Cycles – We were in recession 07 --08 --09 --10

Why do we need a bailout? • Businesses were failing due to stock market crash – Mostly bulky large businesses which were wrapped up in the stock market with options, derivatives, futures, etc. • Entire industries and countries were collapsing – GDP declining

Too big to fail? • The government determined that some companies were too big to fail – – – General Motors Ford Motors Chrysler Bank of America Merrill Lynch AIG • What makes a company too big to fail?

Fiscal Policy • Fiscal policy is the government expenditure and revenue collection to influence the economy – Expansionary • Government spends more than it has to boost the economy – Put money in people’s pockets – Contractionary • Government increases taxes to slow down the economy – Take money out of people’s pockets

Fiscal Policy • Contractionary Expansionary

Aggregate Supply/Demand • The United States • Aggregate refers to the entire economy instead of one sector – Instead of supply and demand for pumpkins, this is overall supply and demand GDP

How expansionary fiscal policy affects Agg D and S AD’ GDP • By pursuing expansionary fiscal policy, the government can boost demand • Giving people money is increasing their income – Remember that income is a determinant of demand

How expansionary fiscal policy affects Agg D and S • Expansionary fiscal policy has 2 effects: AD’ GDP – 1. Increases output/GDP – 2. Increases prices • This is called inflation

Mr. Garcia

RULES!!!!!

This Week Monday – Tuesday – Bailout Wed – Fiscal Policy Thurs. – Book Work Friday – Articles Monday – Review of Cycles and Fiscal Policy/Quiz Tuesday – Monetary Policy Activity Wednesday – Monetary Policy