Fiscal policy
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Fiscal Policy. Fiscal policy Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives , such as high employment, price stability, and high rates of economic growth . Automatic Stabilizers versus Discretionary Fiscal Policy.

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Fiscal Policy

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Fiscal policy

Fiscal Policy

Fiscal policy Changes in federal taxes and purchases that are intended to achieve macroeconomic policy objectives, such as high employment, price stability, and high rates of economic growth.

Automatic Stabilizers versus Discretionary Fiscal Policy

Automatic stabilizers Government spending and taxes that automatically increase or decrease along with the business cycle.


Fiscal policy

An Overview of Government Spending and Taxes

The Federal Government’s Share of Total Government Expenditures, 1929–2008


Fiscal policy

An Overview of Government Spending and Taxes

Federal Purchases and Federal Expenditures as a Percentage of GDP, 1950–2008


Fiscal policy

An Overview of Government Spending and Taxes

Federal Government Expenditures, 2008


Fiscal policy

An Overview of Government Spending and Taxes

Federal Government Revenue, 2008


Deficits surpluses and federal government debt

Deficits, Surpluses, and Federal Government Debt

The Federal Budget Deficit, 1901–2009


Deficits surpluses and federal government debt1

Deficits, Surpluses, and Federal Government Debt

The Federal Government Debt

The Federal Government Debt, 1901–2006


Fiscal policy

MakingtheConnection

  • Is Spending on Social Security and Medicare a Fiscal Time Bomb?

Will the federal government be able to keep the promises made by the Social Security and Medicare programs?


The effects of fiscal policy on real gdp and the price level

The Effects of Fiscal Policyon Real GDP and the Price Level

Looks a lot like expansionary and contractionary monetary policy

…except for impacts on interest rates and investment spending

Fiscal Policy


The effects of fiscal policy on real gdp and the price level1

The Effects of Fiscal Policyon Real GDP and the Price Level

A Summary of How Fiscal Policy Affects Aggregate Demand

Countercyclical Fiscal Policy

Don’t Let This Happen to YOU!Don’t Confuse Fiscal Policy and Monetary Policy


The government purchases and tax multipliers

The Government Purchases and Tax Multipliers

The Multiplier Effect and Aggregate Demand


The government purchases and tax multipliers1

The Government Purchases and Tax Multipliers

The Multiplier Effect of an Increase in Government Purchases

This spending multiplier is analogous

but not the same as the deposit multiplier


The government purchases and tax multipliers2

The Government Purchases and Tax Multipliers

  • A cut in tax rates affects equilibrium real GDP through two channels:

    • A cut in tax rates increases the disposable income of households, which leads them to increase their consumption spending, and

    • a cut in tax rates increases the size of the multiplier effect … it reduces the rate at which purchasing power leaks from the spending stream

    • The less the marginal propensity to leak, the greater the spending multiplier.


The government purchases and tax multipliers3

The Government Purchases and Tax Multipliers

Taking into Account the Effects of Aggregate Supply

The Multiplier Effect and Aggregate Supply


The limits of using fiscal policy to stabilize the economy

Crowding out A decline in private expenditures as a result of an increase in government purchases.

The Limits of Using Fiscal Policyto Stabilize the Economy

Money market

An Expansionary Fiscal Policy Increases Interest Rates


The limits of using fiscal policy to stabilize the economy1

The Limits of Using Fiscal Policyto Stabilize the Economy

Crowding Out in the Short Run

The Effect of Crowding Out in the Short Run


Fiscal policy

MakingtheConnection

  • Did Fiscal Policy Fail during the Great Depression?

Although government spending increased during the Great Depression, the cyclically adjusted budget was in surplus most years.


Fiscal policy

K e y T e r m s

Automatic stabilizers

Budget deficit

Budget surplus

Crowding out

Cyclically adjusted budget

deficit or surplus

Fiscal policy

Multiplier effect

Tax wedge


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