Revenues & Expenditures Fiscal Policy Revenues & Expenditures

Essential Standards The student will explain how the government uses fiscal policy to promote price stability, full employment and economic growth. The student will define fiscal policy. The student will explain the government’s taxing and spending decisions. The student will describe the difference between the national debt and government deficits. The student will explain how changes in fiscal policy can impact an individual’s spending and savings choices.

Fiscal Policy Fiscal Policy is determined by two government actions: Collecting revenue. Authorizing expenditures. Both actions are controlled by the… US Congress.

Which of the following is the best example of a decision involving revenue? iRespond Question Multiple Choice F 5A2F7991-D993-664D-AF9B-FE6073A05F5E A.) the EPA passing new limitations on pollution. B.) Congress' decision to raise marginal tax rates to 36%. C.) the President’s support for a new highway-construction bill. D.) a new law that limits the importation of Ecuadoran bananas. E.)

Which of the following is the best example of a decision involving government expenditures? iRespond Question Multiple Choice F 9849458A-0AA0-D648-98C2-B0F7C8E8082B A.) the institution of a "payroll tax holiday" that temporarily cancels social security deductions. B.) the institution of a permanent ban on all US trade with Russia. C.) the elimination of the so-called "death tax" for families with a net worth of less than $1 million. D.) the development of a high-speed rail line between California and Texas. E.)

Expansionary Fiscal Policy Congress uses expansionary policy to cause an… EXPANSION— If the economy is CONTRACTING. To do this, they have two methods: Increase expenditures. Or cut taxes… If the economy is in HORRIBLE shape, Congress might do BOTH.

Contractionary Fiscal Policy Economic growth is GOOD— But CRAZY growth can lead to troublesomely high levels of demand-pull inflation… So, during periods of EXTREME, RAPID GROWTH, Congress may use contractionary policy to cause a… CONTRACTION. There are two methods: Cut expenditures… Raise taxes.

In terms of fiscal policy, tax cuts are thought to be... iRespond Question Multiple Choice F 30D1513C-8348-054A-918E-04B58C103A21 A.) expansionary B.) contractionary C.) D.) E.)

In terms of fiscal policy, increases in expenditures are thought to be... iRespond Question Multiple Choice F 7F2DCC39-0CB8-C44C-82A5-F6B9B3D144A3 A.) expansionary B.) contractionary C.) D.) E.)

Fiscal Policy: Classical Economics Was the philosophy in the US from 1776 through 1932— It is based on the ideas of Adam Smith… When the economy is in trouble… The government should DO NOTHING… Keep its HANDS OFF, and the “invisible hand” would fix any problems. But the Great Depression (1929-1947) raised this question: HOW LONG DOES IT TAKE FOR THE INVISIBLE HAND TO GET BUSY?

Demand Side (Keynesian) Economics Was developed in the 1930’s by British economist John Maynard Keynes… Who argued that the government action is ESSENTIAL during downturns… And in times of recession or depression… The government should INCREASE EXPENDITURES… Build bridges, highways, hospitals, schools, airports, dams, etc… Which would CREATE JOBS… And pull the economy OUT OF TROUBLE.

Supply-Side Economics Supply-siders focus on TAXES instead of spending. They argue that when the economy takes a downturn… TAX CUTS are necessary— In order to get people spending again. But doesn’t the government need money to operate? If you cut taxes, won’t government services suffer? Supply-siders say NO. They say that when you cut taxes, people spend money— Which increases business profits— Which causes them to hire— Which creates TAXPAYERS— So the government will actually collect MORE revenue when tax rates are low.

A.) classical economics. In reaction to an economic downturn, Congress announces a package of massive tax cuts. Such a policy is in line with... iRespond Question Multiple Choice F C02D47C4-0FA7-7C46-A1C4-EE780AEA83E0 A.) classical economics. B.) supply side economics. C.) demand side economics D.) E.)

A.) classical economics. In reaction to an economic downturn, Congress passes a stimulus package that includes billions of dollars in funding for highway construction. Such a policy is in line with... iRespond Question Multiple Choice F A41C73C6-033C-F242-9411-A4A8D82CB0FB A.) classical economics. B.) supply side economics. C.) demand side economics. D.) E.)

Surpluses & Deficits Fiscal policy decisions result in one of two situations: Budget deficits—when expenditures EXCEED revenues— In 2013, the US SPENT $680 BILLION more than it collected in taxes… And budget surpluses— When revenues EXCEED expenditures. In 2001, the US collected $127 BILLION more than it SPENT. Which situation is more common in this country? DEFICITS. And if we regularly spend more than we have, we run up large amounts of… DEBT. This is called the NATIONAL DEBT.

The National Debt Is defined as the total amount of money the federal government owes to bondholders. Every year that the government runs a deficit, it must borrow money to operate. To borrow money, the government sells US Bonds (they are sometimes called SECURITIES). Individuals and nations all over the world buy them… Because they are viewed as one of the SAFEST POSSIBLE INVESTMENTS that one can make.

Your personal share (if you are a US citizen) is… The National Debt, as of 7 April, was…. 17,569,265,350,000.00 Your personal share (if you are a US citizen) is… $55,280.40 Since September 28, 2007, the National Debt has increased by a DAILY average of… $3.87 BILLION

A Candidate For Congress Promises to “Tackle the Debt Issue” If we SPEND more than we MAKE, we should cut spending. Let’s look at the budget: National Defense—20%. “Spending reductions would put our troops in harm’s way.” Social Security—20%. “Social Security is the ‘third rail’ of American politics.” Other safety net programs—40%. “We’re going to balance the budget on the backs of the neediest members of society? NO.” Interest on the national debt—10%. Failure to pay interest would result in default, causing an economic catastrophe. And the rest is small change. So if we can’t cut spending, let’s RAISE TAXES. Right?