Fiscal Policy SSEMA3

What is Fiscal Policy? Sometimes in a market economy it is necessary to shift the demand curve – this is called demand-siding Fiscal policy is the governments attempt to influence or stabilize the economy through taxing and government spending

Demand Side Policies Fiscal policies are designed to increase employment by stimulating demand

How does the Government get involved? The govt. is the only thing big enough to offset a spiraling economy The govt. can undertake its own spending to offset the spending in other parts of the economy – like businesses The government can also lower taxes to increase borrowing and push consumers to spend more So, if business spending was down $50billion – the government might spend $10 billion building a dam, $20 billion in grants to fix neighborhoods, and $20 billion in other ways This spending would offset the $50 billion that businesses did not spend

Or – instead of spending, the government could just reduce taxes giving consumers and businesses more purchasing power P. 420 read – demand side policies

Supply Side Policies Designed to stimulate output and lower unemployment by increasing production NOT by stimulating demand The key goal here is to reduce the governments role in the economy Reducing federal agencies Less government spending Deregulating firms – allowing them to produce at full capacity See p. 425 figure 15.7

Assignment Read the chart on page 423 – Comparing Policies How are both of these policies similar? How are they different?