DO NOW 1) Get Cornell notes from the table 2) Get out your laptop and go to GOOGLE CLASSROOM 3) Answer the “Fiscal Policy Warm- up” Question

Warm-Up: Personal “Fiscal” Policy You and your spouse make $50,000/ year and spend $40,000/year in living expenses. You lose your job (so your income is cut in half— from $4,000/mo. to $2,000/mo.). Out of the following monthly expenses, how would you choose to spend the income you still have from your spouse’s salary? Mortgage $1,000 Food $ 500 Insurance $ 150 Car expenses $1,200 Restaurants $ 200 Clothes $ 300 Savings $ 400 How would you adjust your spending habits in reaction to the change in your situation? Consider…are some of these expenses “non-negotiable?”

Fiscal Policy Learning Target: Essential Questions: What makes an economic policy fiscal? What are the tools used to implement fiscal policy? Learning Target: I can describe fiscal policy, and explain how government carries it out. I will show I understand by participating in a simulation and answering questions/reflecting.

Origins of Modern Economic Policy Policymakers use a combination of fiscal & monetary policy to keep the economy running smoothly. Before the Great Depression, federal and state governments rarely intervened in the economy. Laissez-faire economic policy--don’t intervene—let market problems resolve themselves because gov’t intervention could have unintended consequences.

FISCAL POLICY National—Congress & the President Fiscal policy – uses the government‘s power to tax its citizens and spend that tax revenue to get an economy moving again or address inflation. Fiscal policy is carried out at ALL LEVLES of gov’t National—Congress & the President State—State legislature & the Governor Local—City/Town council & Mayor

FISCAL POLICY Because all levels tax and spend to provide public health, safety, and welfare: --public goods and services/programs --running gov’t depts and agencies

John Maynard Keynes Economist believed that: fiscal policy could be used to fight economic recession (slow growth due to lack of demand for labor/goods & services in the private sector) government spending in the public sector (on new/expanded public programs, more public goods/services, etc.) could stimulate demand for labor during recessions.

The “KEY” to growing the economy is taxing and spending Including deficit spending— gov’t spending more than is coming in to them in tax revenue. Think of it as “spending a line of credit to grow enough to have the money to pay it back.” John Maynard Keynes The “KEY” to growing the economy is taxing and spending

What tools does fiscal policy use? EXPANSIONARY Fiscal Policy EXPANDS economic activity by: -INCREASING government spending… Put more money into the economy by paying to provide more public goods/services AND/OR -DECREASING taxes… Leave more money in the economy to be spent by consumers on private goods/services

What tools does fiscal policy use? Examples of Expansionary Fiscal Policy The New Deal -$50 billion in federal spending from 1933-1945 -In response to the Great Depression -Targeted infrastructure, job training, social security & unemployment benefits 2008 Economic Stimulus Act -Taxpayers given a “rebate” of $600-$1,200 -In response to the Great Recession

What tools does fiscal policy use? CONTRACTIONARY Fiscal Policy CONTRACTS economic activity by: -DECREASING government spending… Put less money into the economy by cutting gov’t spending to public goods/services AND/OR -INCREASING taxes… Leave less money in the economy to be spent by consumers on private goods/services

What tools does fiscal policy use? Examples of Contactionary Fiscal Policy Virginia Beach City Budget Cuts -Starting in 2008 -In response to the Great Recession -Targeted school budget/after-school programs, city programs, etc. Local property tax increases -Property owners have seen increases since 2008 in the tax they pay on property they own -In response to city budget shortfalls

Crash Course in Economics # 8

SMARTIES & TAXES You will take on the role of each part of the circular flow model. In each case, the Smarties are “money.” Each member of your group will be the “scribe” on your handout for one of the sections. Follow each of the steps on your handout and pay attention for breaking news that will impact you in each role. Turn in your handout to the tray.