Fiscal Policy Use of government spending and revenue collection to influence the economy.

Fiscal PolicyUse of government spending and revenue collection to influence the economy

Fiscal

0Taxes and expenditures of huge amounts of money0Spends $250 million every hour0$6 billion a day0$2.3 trillion a year0Fiscal policy attempts to achieve economic growth,

full employment, and price stability

Federal budget

0Written document outlining how much government expects to receive and how they will spend it- Oct 1-Sept 30

0Office of Management and Budget OMB-calculates and oversees budget-gives the President a budget report on spending

0CBO-Congressional Budget Office- analyzes and collects all date on budget

0Appropriations- spending bills from Congress

Fiscal Policies

0Expansionary policies- increase output1. Increase government spending2. Cut taxes0Contractionary policies- decrease output01. Decrease government spending02. Raise taxes0Difficult- debt, predicting economy, expenditures SS,

medicare, etc,,,0Getting President and Congress to work together

Fiscal Options

0Classical Economics- free market believers0Great depression casted doubts0Keynesian Economics-John Maynard Keynes0Economy made up of 3 sectors-individuals, business,

and government. Government should use policies to influence economy

0Avoid recessions and depressions, control inflation, 0Multiplier effect- $1 govt spending creates $1 in

economic activity in economy

Fiscal Options

0Demand side economics- govt spending + tax cuts will increase demand= econ growth

0Supply side economics- tax cuts spur economic growth.

0Balance- revenues is the key!!!!!!!!!0US has used all versions/combinations of fiscal

options

Budget Deficits/National Debt

0Budget SHOULD balance revenues=expenditures- Not happening

0Budget surplus- revenues exceed expenditures0Budget Deficit- expenditures exceed revenue0How to pay for deficit?0Print money- leads to inflation0Hyperinflation- very high inflation0Borrow money- sell bonds/promisory notes0Treasury Bills, Treasury Notes, Treasury Bonds

National Debt

0All money the Federal government owes to bondholders- China

0Out of control today0Problems with National Debt01. Reduces funds available for businesses to invest-

crowding out effect02. Government must pay interest to bond holders-

China