Fiscal Policy

Answer in a complete sentence Success Criteria 3/31/2017 1.We can identify the meaning of Fiscal Policy.  2.We can compare and contrast the methods of doing Fiscal Policy.  3.We can analyze scenarios to determine the steps the gov't can take to fix the economy.  4.We can evaluate the best way for the gov't to allocate their money by creating budgets and writing arguments Answer in a complete sentence What is a recession? Do you remember the last big recession? (You would have been in elementary school) What were people talking about? Did you hear about Obama's plan to fix it?

House Cleaning Economics HW is due Tuesday the 4th!! With this extra time EVERYONE should have it done (one of your first grades for fourth quarter) No Unit 6 Test – Quiz Today! Quiz next Thursday April 6th 6 more school days until break, so don’t act like a clown

Expansion Recession GDP is going up Unemployment is going down People spend money and businesses make more things GDP is going down Unemployment is going up People don’t spend money and businesses stop making things

Government’s Role in the Economy The economy is not totally controllable. Recessions are inevitable and often unpredictable. However, the government can do things to encourage economic growth and slow down recessions.

Gov’t’s Goals for the Economy 1. Low inflation (between 0-3% CPI) 2. Full employment (unemployment below 5%) 3. Steady economic growth (about 3% - 5% GDP growth)

How do they do it? Fiscal Policy – How the government decides to tax and spend money to influence the economy It does this through raising/cutting taxes and raising/cutting spending The President gives Congress a budget, and they decide what to keep

What Can the Government Do? If the economy is in recession, Congress can reduce taxes. This gives people more money to buy things Companies have to make more products, which means they hire more people and so on… What is the opportunity cost of this? Less taxes = less gov’t money to spend on social programs

What Can the Government Do? Congress can also decide to spend more money. If the gov’t spends money to repair roads, build libraries, etc. then more people have jobs. These people then have money to spend, then businesses produce more, and the expansion cycle begins. What is the problem with this? How do we LOWER taxes and then RAISE spending?

Let’s see if you get it!! Easy formula to remember: Taxes raised = slower economy and higher unemployment (less jobs). Taxes cut = economy speeds up and lower employment (more jobs). Spending increased = economy speeds up and lower unemployment (more jobs). Spending cut = slower economy and higher unemployment (less jobs).

So, how does the government balance the desire to have low taxes and higher spending?

What is the economic benefit of lowering taxes?? More Consumer Spending! Less taxes means more money in your pockets to spend on things!

When the gov’t increases taxes, what happens to consumer spending? Decrease in Consumer Spending. People have LESS money in their pockets to spend on things.

Actions to SLOW DOWN the Economy Actions to STIMULATE the Economy Raise Taxes Lower Taxes Decrease Federal Spending Increase Federal Spending The housing market is weak and people are losing their homes, so demand for government relief is high. Many people have lost their jobs and consumers have started buying cheap goods. There is a government deficit and Americans are rebelling against tax increases because they can’t pay their bills. Slow Down or Stimulate

Actions to SLOW DOWN the Economy Actions to STIMULATE the Economy Raise Taxes Lower Taxes Decrease Federal Spending Increase Federal Spending The economy is booming. Consumers, gov’t, and businesses have all been spending. Salaries are climbing rapidly, but so are the prices of goods. Inflation has increased by 15% each year and the experts say that unless inflation is addressed, unemployment will likely increase in the near future. Slow Down or Stimulate

RAISE OR CUT TAXES? U.S. businesses are not making as much money as they were last year. They need help or they’ll have to start laying off workers.

CUT!!!!

RAISE OR CUT TAXES? Consumer spending is WAY down. The government has to get people to spend more money, and quickly!!!

CUT!!!!

RAISE OR CUT TAXES? The economy has been growing very quickly, but so are prices. Some members of Congress are afraid prices are rising too quickly.

RAISE!!!!

Raise or Cut Spending Congress is worried that unemployment is too high and that it will hurt the economy.

RAISE!!!!

The economy is in a deep recession, and the government HAS to act. Raise or Cut Spending? The economy is in a deep recession, and the government HAS to act.

RAISE!!!!

Make Your Own Budget! Imagine you are the Mayor and there is a recession right now You must create a budget that helps the economy get going again Decide how much each section should get

Krzys Budget 2017

Gray Budget 2017

BCR Time! Based off of what you have learned about the economy, what kind of role should the government play in the economy? Should they try to stop or shorten recessions, or just wait until an expansion happens, knowing that it is a natural part of the cycle?