The 2008 bailout and fiscal policy
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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

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Presentation Transcript

Remember
Remember

  • Business Cycles – We were in recession

07 --08 --09--10


Why do we need a bailout
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
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

  • 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 policy1
Fiscal Policy

  • Contractionary Expansionary


Aggregate supply demand
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
How expansionary fiscal policy affects Agg D and S

  • 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

AD’

GDP


How expansionary fiscal policy affects agg d and s1
How expansionary fiscal policy affects Agg D and S

  • Expansionary fiscal policy has 2 effects:

    • 1. Increases output/GDP

    • 2. Increases prices

      • This is called inflation

AD’

GDP




This week
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


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