Fiscal Policy
EQ: What’s all the commotion about government spending?
Review Ch 9 Get in groups of two :
Group member 1 – using the text, develop 4 questions from ch 9 using the following terms: Personal Income Tax, Regressive, Excise, and Payroll
Group member 2 - using the text, develop 4 questions from ch 9 using the following terms: Progressive, proportional, FICA, and sales tax
Once you have your questions developed (and written down), trade questions and each answer
Where does the government spend our money? Where do you think?
Definition Fiscal - Government’s attempt to
regulate the economy by taxation and government spending
Two Types of Fiscal spending
Automatic/mandatory Policy that is already in legislation to take affect without additional work by Congress
Discretionary Policy that
requires a new act of Congress to establish.
Discretionary
EOCT Review1. Draw a Productions Possibilities Curve showing the trade-off
between guns and butter. What do “guns” and “butter” represent?
2. Name 4 factors that affect demand.3. Name 4 factors that affect supply.4. Draw a perfectly elastic demand curve.5. Draw a perfectly inelastic demand curve.6. What happens at equilibrium for supply and demand?7. At what point is profit maximizing level of output reached?8. Minimum wage is an example of a price ___________. What
happens with a price floor?9. Describe the differences between perfect competition and
monopoly.10. What is the equation for total revenue?
Fiscal PolicyExpansionary Policy
Increases AD Increases GDP Stimulates the
economy Gets us out of a
recession
Contractionary Policy
Decreases AD Decreases GDP Slows down the
Economy Prevents inflation
Review What are two types of fiscal spending?
Explain What type of policy decisions are used
when the economy is contracting or in recession?
What type of policy decisions are used when the economy is expanding or experiencing high inflation?
Fiscal Policy Tools
Expansionary Cut in Taxes
Personal/Corporate Income
Increase in Government spending
Deregulation of Business
Increase of social programs
Contractionary Increase in taxes Decrease in
Government Spending
Increase in Business Regulations
Cut in social programs
Progressive Income Tax Structure
Critical Thinking Why might the government want to
engage in expansionary fiscal policy? Contractionary?
Obama’s Jobs Plan
Interpret the cartoon…1 CDs; 2 CMs
Recap Video http://www.youtube.com/watch?v=1qhJP
qyJRo8
What is the objective for AD?
1. The government cuts personal income-tax rates.
2. The government eliminates favorable tax treatment on long-term capital gains.
3. Incomes rise; as a result, people pay a larger fraction of their income in taxes.
4. As a result of a recession, more families qualify for food stamps and welfare benefits.
What is the objective for AD? 5. The government eliminates the deductibility
of interest expense for tax purposes.
6. The government launches a major new space program to explore Mars.
7. The government raises Social Security taxes.
8. Corporate profits increase; as a result, government collects more corporate income taxes.
9. The government raises corporate income tax rates.