Fiscal Policy Options

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

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

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

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

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

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

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

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

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 1st then economy flourished.

The End