Governments & Fiscal Policy Three levels of government: 1.Federal (USA) 2.State (NH) 3.Local (Merrimack) Fiscal Policy = plan for how governments gain.

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Presentation transcript:

Governments & Fiscal Policy Three levels of government: 1.Federal (USA) 2.State (NH) 3.Local (Merrimack) Fiscal Policy = plan for how governments gain revenue & determine spending

Who decides fiscal policy? The President (proposes fiscal policy) The Congress (passes/kills these proposals) Example: The annual budget must be approved by Congress after proposal by President Remember: 536 people make up these two sides!! (US population: 312 million)

How does the government get money? The US government gets its spending ability from two sources: 1.Taxes (almost ½ from personal income taxes) 2.Borrowing (future budgets & bonds)

What are the “other” expenses? Net interest on national debt (app. $18 trillion) Welfare Farm subsidies Unemployment Federal retirement benefits Education Miscellaneous programs

Types of Budgets: Surplus (spending < revenue) Balanced (spending = revenue) Deficit (spending > revenue)

How does a nation go “into debt”? If a government (nation) SPENDS more than it GETS for one year = budget deficit (-) (OK short-term, bad long-term) If a government (nation) GETS more than it SPENDS for one year = budget surplus (+) (depends in short-term, good long-term) The SUM of all federal budgets = national debt ($18 trillion as of May 2015)

How to “solve” debt problem? The federal government can do two things: 1.Change tax structure (raise or cut) 1.Borrow to meet current expenses (run a deficit budget) **Current events have a dramatic effect on federal budgets