Warm Up: True or False (If FALSE, make it into a true statement by changing the word(s) in yellow) To correct an inflationary problem in the U.S., the AD curve needs to shift to the __________. Using an expansionary fiscal policy results in interest rates _________. Supporters of fiscal policy believe that inflation can be reduced by __________ ________________. 4. Keynes believed that spending money was the key to controlling the economy during a _____________. 5. Full employment implies that unemployment is ________________.

Warm-Up What are the 3 macro goals of the U.S. economy? 2) What problems may result from too much inflation? 3) What problems may result from a recession

Two Major Problems That Can Occur in Our Economy [extremes of the __________________): __________/__________: - Low GDP/high unemployment __________: Prices increasing too quickly HOW DO YOU FIX THEM???

____________

Definition: Fiscal Policy can be defined as what the government does with _________ or __________ ___________ to stabilize the economy during periods of recession or inflation. What the ____ __________ does to try and ___________ ____ ___________.

What are the 2 tools of fiscal Policy? ________________ 2) ________________

Three Possible Results of Fiscal Policy: _______ ________: government spending _________ than tax revenue _______ _________: government spending is ______ than tax revenue _________ _______: government spending __________ to tax revenue

Create a Tree Map

How Fiscal Policy Started… Before the Great Depression, the U.S. adopted a policy of _________-______. (___ _____________ _____________) But with the economy in such an economic crisis during the ________, citizens cried out for the gov’t to take ________ and play a more _______ role in the ___________

________________________ Why do you think citizens wanted the government to become more “ACTIVE”? ________________________

John Maynard Keynes He was __________ economic guru during the ________ ___________. He advised the president that the only way to bring the economy out of a __________ was for the __________ to play a more ______ role in the economy (______ ________). Therefore, Keynes is noted for being the ________ ___ _________ _________. Fiscal Policy greatly __________ the role of the government in the ________ _______.

________________________ In what way is Keynes’ advice to FDR different from the policy of laissez-faire? ________________________ ________________________

Problem: ___________/___________ SOLUTION: The government pursues an _____________ fiscal policy: ___________ government spending ___________ taxes The intention is to _________ GDP and _________ unemployment =___________________

________________________ How does increasing government spending and/or lowering taxes help fight the problem of a recession??? ________________________

Problem: ___________/___________ SOLUTION: The government pursues an _____________ fiscal policy: ___________ government spending ___________ taxes The intention is to _________ GDP and _________ unemployment =___________________

________________________ How does decreasing government spending and/or increasing taxes help to fight the problem of inflation??? ________________________

Wrap-Up What are the 2 extremes of the business cycle? 2. What type of fiscal policy should be pursued to fight a recession? 3. What type of fiscal policy should be pursued to fight inflation? 4. Who’s the founder of Fiscal Policy? 5. What does laissez-faire mean?