Fiscal Policy(3/6)

Fiscal Policy(3/6)

Gov't uses 2 options to stabilize the economy...

Fiscal Policy

• actions by Congress to stabilize the economy

• changes in expenditure or tax revenues of federal gov't

• the 2 tools are taxes(increasing or decreasing) or spending(increasing or decreasing) 

• 3 policies to promote gov't economics gov't - Full employment, Price Stability, Economic Growth

Deficits, Surpluses, and Debt

• Balanced Budget - Revenue(R) = Expenditures(E)
• Budget Surplus - R > E
• Budget Debt - R < E
• Gov't Debt = Σ deficits - Σ surpluses
• Gov't Borrows from - individuals, corporations, financial institutions, foreign entities

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Fiscal Policy Again

• Non-Discretionary Fiscal Policy(nonaction)
• Types of Taxes
  • Progressive Taxes - larger% of income from the high income groups
  • Proportional Taxes (flat rate)- same% of income from all income grps
  • Regressive Taxes - larger% from low income grps
• Discretionary Fiscal Policy

• Contractionary FP (The Brake)

• Fights Inflation

• Taxes increases, Transfers decreases, Gov't Spending decreases, Budget Surplus

• Expansionary FP (The Gas)

• Fights Recession

• Taxes decreases, Transfers increases, Gov't increases, Budget Deficit