Budgets & Policies

Government use of taxing and spending to stabilize the economy Fiscal Policy

Written document indicating the amount of money the government expects to receive & spend for a year Federal Budget

OMB (Office of Management & Budget) – in the exec. dept… They manage the budget The President CBO (Congressional Budget Office) – They help Congress with budget decisions CONGRESS Federal Budget In your home who is the OMB and who is the CBO? It truly doesn’t matter…

Appropriations Bill – a bill that sets money aside for specific spending Federal Budget

12 month period… not January – December Oct. 1 through Sept 30 for government fiscal year Fiscal Year

Fiscal policies that attempt to increase economic output, such as higher spending or tax cuts Expansionary Policy

Contractionary Policies Fiscal policies that attempt to decrease economic output, such as lower spending or higher taxes

Limits of Fiscal Policy  Difficulty of changing spending levels  Predicting the future  Delayed results  Political Pressures  Coordinating Fiscal Policy

16.1 Government Size of the Government Since WWII the size of the gov. has increased nearly 5 times more than the growth of the population. 1970’s People began demanding more from their government to balance out inequalities.

Government Involvement 1. Public Works Projects Publicly used facilities built with tax payer money. (schools, highways, bridges, dams etc.) 2. Public Goods Goods or services that can be used by many individuals at the same time without reducing the benefit each person receives. (law enforcement, fire department, national defense)

Government Involvement Government ensures that everyone maintains a minimum level of support. 3. Income Redistribution- government activities that takes income from some people through taxation and uses it to help citizens in need. Social Insurance Programs - Government program that pay benefits to retired, disabled workers, their families, and the unemployed. Workers Comp Social Security Public Assistance Programs - Government programs that make payments to those in need. Welfare Medicaid Temporary Assistance for the Needy

Government Involvement Externalities- economic side effects or by-products that affect an uninvolved 3 rd party. Positive Fireworks Negative Air pollution

Quiz? Since the 1970’s what has happened to the size of government? What is the difference between a public good and a public works project? What are the 2 sub categories of Income Redistribution?

Classical Economics The idea that free markets can regulate themselves, without govt. intervention (laissez faire)

Keynesian Economics The idea that govt. spending can help an economy by raising demand

Fiscal Policy in American History World War II – Keynesian economics. Government spending for the war effort helped the economy.

Fiscal Policy in American History Kennedy Administration – tax cuts helped to stimulate the economy.

Fiscal Policy in American History 1980’s (Reagan Administration)– reduced taxes dramatically over 3 years. Caused a recession at 1 st then economy flourished.

Demand-Side Economics The idea that government spending and tax cuts can help an economy by raising demand

Supply-side Economics The idea that tax cuts (particularly for the wealthy) can help an economy by increasing supply

Multiplier Effect The idea that every one dollar of spending creates more than one dollar in economic activity