Fiscal Policy- the use of gov’t spending and taxing to influence the economy Chapter 15, Sections 1 & 3

Congress and the Executive use taxing and spending to stimulate or slow down economic growth. Decreasing taxes and increasing spending will stimulate the economy. This is expansionary policy. Increasing taxes and decreasing spending will slow the economy down. This is contractionary policy.

The Federal Budget Def- A written document indicating the amount of money the gov’t expects to receive and authorizing the amount, and for which programs, money will be spent in one year. The fiscal year for the Federal Budget starts on Oct. 1 and goes to Sept. 30. The budget is prepared by the Office of Management and Budget (OMB) which is within the executive branch and works closely with the president.

The Federal Budget The president sends the budget to Congress where it’s various parts are debated and revised in committees. The revised budget is called the budget resolution, which must be approved by both Senate and the House to be sent back to the President to be signed into law. If the president and executive cannot come to an agreement, the gov’t can “shut down” causing many gov’t workers to go without paychecks and programs to go without funding http://

Macro Episode. 26 questions: Section 2 Which curve does fiscal policy tend to have the greatest effect on, Aggregate Supply or Aggregate Demand? Why do consumers and politicians tend to dislike contractionary policy? Which type of economist thinks the market cannot self adjust quickly without the help of gov’t spending, Keynesian or Classical economists?

Fiscal Deficit vs. National Debt The Fiscal Deficit occurs when a gov’t plans to spend more than it will collect in revenue. The opposite is a Fiscal Surplus. The National Debt is the total amount owed by the Federal gov’t that has been increasing for many years b/c of the tendency of the gov’t to operate thru deficit spending.

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The national debt is over 17 trillion dollars. It is greater than our GDP.