CHAPTER 29

Fiscal Policy

PowerPoint® Slides by Can Erbil

© 2005 Worth Publishers, all rights reserved

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What you will learn in this chapter:What fiscal policy is and why it is an important tool in managing economic fluctuationsWhich policies constitute an expansionary fiscal policy and which constitute a contractionary fiscal policyWhy fiscal policy has a multiplier effect and how this effect is influenced by automatic stabilizersHow to measure the government budget balance and how it is affected by economic fluctuationsWhy a large public debt may be a cause for concernWhy implicit liabilities of the government are also a cause for concern

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Fiscal Policy: The Basics

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Sources of Tax Revenue in theUnited States, 2004

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Government Spending in theUnited States, 2004

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The Government Budget and Total Spending

Fiscal policy is the use of taxes, government transfers, or government purchases of goods and services to shift the aggregate demand curve.

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Expansionary and Contractionary Fiscal PolicyExpansionary Fiscal Policy Can Close a Recessionary Gap

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Expansionary and Contractionary Fiscal PolicyContractionary Fiscal Policy Can Eliminate an Inflationary Gap

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The Multiplier Effect of an Increase in Government Purchases of Goods and Services

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How Taxes Affect the MultiplierAutomatic StabilizersDiscretionary Fiscal Policy

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Differences in the Effect of Expansionary Fiscal Policies

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The Budget Balance as a Measure of Fiscal Policy

expansionary fiscal policiescontractionary fiscal policies

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The U.S. Federal Budget Deficit and the Business Cycle

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The U.S. Federal Budget Deficit and the Unemployment Rate

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The Actual Budget Deficit Versus the Cyclically Adjusted Budget Deficit

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Government Debt as a Percentage of GDP

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U.S. Federal Deficit and the Federal Debt-GDP Ratio since 1939

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Japanese Deficits and Debt

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The Implicit Liabilities of the U.S. Government

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The End of Chapter 29

coming attraction:Chapter 30:

Money, Banking, and the Federal Reserve System