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Fiscal Policy

Fiscal Policy. a nd the budget. Keep your vocabulary out…. Fiscal policy is an attempt by the government (President and Congress) to stabilize and/or regulate the economy using the tools of the budget. . The tools of the budget are taxes and spending. . What is the policy? Fiscal Policy.

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Fiscal Policy

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  1. Fiscal Policy and the budget

  2. Keep your vocabulary out… Fiscal policy is an attempt by the government (President and Congress) to stabilize and/or regulate the economy using the tools of the budget. • The tools of the budget are taxes and spending.

  3. What is the policy? Fiscal Policy Why do we use it? To regulate or stabilize the economy Who controls it? The President and Congress How does it work? Using the tools of the budget. The tools of the budget are taxes and spending.

  4. Fiscal Policy song: To the tune of Frere Jacques: (Seriously) Fiscal Policy (repeat) Has two tools (repeat) Taxes and spending (repeat) Is what they use (repeat)

  5. Keynes (John Maynard Keynes, aBritish Economist) believed the government could use fiscal policy (its budgetary plan) to fix the economy (by controlling spending). Keynes believed if you (the government )could control demand; you could control the economy. because your spending impacts the economy. Keynesian economics is also known as “demand-side” economics. The government must take control the economy during periods of inflation and periods of recession in order to fix or stabilize the economy. So, how does it control the economy or attempt to control the economy?

  6. How to “fix” an inflation Inflation means there is too much money in the economy. (There is too much money is circulation.) It is like a balloon with too much air it. How does one keep it from popping? …LET THE AIR OUT! So, the government needs to let the air out of the economy. In other words, it needs to take some money out of the economy. Take money out b/c there is too much spending or demanding going on!! ( We spend/demand = too much = inflation)

  7. INFLATION • TOO MUCH SPENDING • TOO MUCH DEMANDING • TOO MUCH PURCASHING MORE AND MORE GOODS So, keeping in mind that the government can raise or lower taxes; what should the government do to the amount of money it collects from you in taxes? RAISE OR LOWER THEM? RAISE! And what should it do to its own spending? CUT SPENDING! (LOWER SPENDING.)

  8. RECESSION Recession means too little money in the economy. Therefore, recession means too little spending or demanding (demand-side economics). Keynes would say it means too little demand. There is too little air in the balloon. So, this time we have to fill it up! The question is how!

  9. RECESSION During a recession, when people are not spending; not demanding. how much should the government collect increase or decrease taxes? TAXES SHOULD BE LOWERED/DECREASED What should the government do to its own spending? Increase/decrease? GOVERNMENT SPENDING SHOULD BE INCREASED. What did the government (Congress and President Bush) do one spring; in hopes of boosting the economy, boosting spending? ISSUED REBATES. A bonus…extra money back.

  10. DEMAND-SIDE ECONOMICS • INFLATION ~~~ • DECREASE DEMAND • INCREASE TAXES • DECREASE SPENDING • *POLITICAL SUICIDE • RECESSION~~~ • INCREASE DEMAND • DECREASE TAXES • INCREASE SPENDING • ISSUE REBATES

  11. Demand-side economics is a very direct type of economic policy. Draw a little hand in your notebook as you did in kindergarten for a “turkey.” $ “D” FOR DEMAND “D” FOR DIRECT.

  12. Too much money = inflation Too little money = recession!!!

  13. SUPPLY-SIDE ECONOMICS(REAGANOMICS) If demand -side economics implies that if you can control demand ; you can control the economy; then the opposite would be called:

  14. Supply-side economics is also called “Reaganomics” because it was used but not “created” by President Reagan. Supplyside economics starts with businesses not workers. Here’s the idea: To increase supply, we must: Cut businesses taxes Businesses will expand Supply will increase More will have to be hired to fill production Money will reach the workers hand! $$$ IT IS NOT A DIRECT POLICY!. • MONEY “TRICKLES DOWN” TO YOU

  15. RECAP!!!! Demand-side economics is the same as Keynesian economics. If you can control the demand; you can control the economy. HINT: DEMAND IS THE KEY OR THE KEY IS DEMAND linking Keynes and demand together… What are the tools of fiscal policy? How should the government use its tools of fiscal policy during a recession? Supply-side economics is the same as Reaganomics. I f you can control the supply you can control the economy. It operates using the TRICKLE DOWN THEORY. HINT: R-S-T (just like the alphabet) R for Reganomics, S for supply-side, T for trickle down theory

  16. QUESTIONS? COMMENTS? HOSTILE DISAGREEMENTS?

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