Fiscal Policy Dictionary: of or pertaining to public (govt.) finances. Pertaining to financial matters in general. Using taxes and government spending to influence the economy Dictionary: of or pertaining to public (govt.) finances. Pertaining to financial matters in general. Using taxes and government spending to influence the economy

Who controls fiscal policy? Each year the president and his advisors create a federal budget. Uses the Office of Management and Budget – gathers budget information for all federal agencies Pools information into one collective national budget OMB presents budget to president, who can approve or make recommendations for change Each year the president and his advisors create a federal budget. Uses the Office of Management and Budget – gathers budget information for all federal agencies Pools information into one collective national budget OMB presents budget to president, who can approve or make recommendations for change

Who controls fiscal policy? Congress must approve that budget. Determines how much tax revenue the government will bring in and how much money they will spend on programs. “The purse and the sword must not be in the same hands” – George Mason Can create conflict – different members have different fiscal and political agendas Congress must approve that budget. Determines how much tax revenue the government will bring in and how much money they will spend on programs. “The purse and the sword must not be in the same hands” – George Mason Can create conflict – different members have different fiscal and political agendas

Students – answer in notes:. How will raising taxes affect the economy? 1. What is the impact on consumption? 2. What is the impact on production (GDP)? 3. What is the impact on employment? 4. What is the impact on the government’s budget? 5. Overall, did the economy expand or contract?. How will raising taxes affect the economy? 1. What is the impact on consumption? 2. What is the impact on production (GDP)? 3. What is the impact on employment? 4. What is the impact on the government’s budget? 5. Overall, did the economy expand or contract?

Students – answer in notes How will reducing taxes impact the economy? 1. What is the impact on consumption? 2. What is the impact on production (GDP)? 3. What is the impact on employment? 4. What is the impact on the government’s budget? 5. Overall, did the economy expand or contract? How will reducing taxes impact the economy? 1. What is the impact on consumption? 2. What is the impact on production (GDP)? 3. What is the impact on employment? 4. What is the impact on the government’s budget? 5. Overall, did the economy expand or contract?

Students – answer in notes How will an increase in government spending affect the economy? 1. What is the impact on consumption? 2. What is the impact on production (GDP)? 3. What is the impact on employment? 4. What is the impact on the government’s budget? 5. Overall, did the economy expand or contract? How will an increase in government spending affect the economy? 1. What is the impact on consumption? 2. What is the impact on production (GDP)? 3. What is the impact on employment? 4. What is the impact on the government’s budget? 5. Overall, did the economy expand or contract?

Students – answer in notes How will a decrease in government spending affect the economy? 1. What is the impact on consumption? 2. What is the impact on production (GDP)? 3. What is the impact on employment? 4. What is the impact on the government’s budget? 5. Overall, did the economy expand or contract? How will a decrease in government spending affect the economy? 1. What is the impact on consumption? 2. What is the impact on production (GDP)? 3. What is the impact on employment? 4. What is the impact on the government’s budget? 5. Overall, did the economy expand or contract?

It’s a matter of perspective GDP- what is good / bad? Hope to see …..growth per year? Unemployment – what is good/bad? Natural Rate (what is expected even if the economy were at full production) = ? Inflation – what is good/bad? Expect to see ….? GDP- what is good / bad? Hope to see …..growth per year? Unemployment – what is good/bad? Natural Rate (what is expected even if the economy were at full production) = ? Inflation – what is good/bad? Expect to see ….?

DISCUSSION : If you were in control of Congress, what would you do if ……Answer in notes 1. GDP increased by 6% last year, unemployment was at 4%, and inflation was at 10%? (What and Why) 2. A. GDP fell 3% last year, unemployment was at 9% and inflation was at only 1%? (What and Why) 2 B. What if the government had $16 Trillion dollars in debt at the same time as the conditions in part A? Would your answer to #2A still sound good? 1. GDP increased by 6% last year, unemployment was at 4%, and inflation was at 10%? (What and Why) 2. A. GDP fell 3% last year, unemployment was at 9% and inflation was at only 1%? (What and Why) 2 B. What if the government had $16 Trillion dollars in debt at the same time as the conditions in part A? Would your answer to #2A still sound good?

Discussion – answer in notes 3. If the country was attacked and needed to go to war, what fiscal tools would the government use to pay for the war? 4. Why is it rare for politicians to practice Contractionary Fiscal Policy even when there is a need to do so? 3. If the country was attacked and needed to go to war, what fiscal tools would the government use to pay for the war? 4. Why is it rare for politicians to practice Contractionary Fiscal Policy even when there is a need to do so?