Today’s Schedule – 11/22 Video: Super Committee Fiscal Policy PPT HW: – Read 15.3 – Enjoy Tday Break!!
Definitions Fiscal Policy- the use of government spending and revenue collected to influence the economy Federal Budget- a plan for the federal government’s revenues and spending for the upcoming year Fiscal Year- 12 month period – Federal Govt: Oct. 1 – Sept. 30
Spending Proposals Office of Management and Budget (OMB) – Government office that is responsible for managing the federal budget – Meets with each department /agency head to discuss how much $$ they want/need for upcoming year
Budget Approval OMB creates a proposed budget on behalf of the president Congress then reviews/debates the budget – Ease of passage depends on president’s relationship with Congress – Use the Congressional Budget Office (CBO) Budget must be adopted by May 15
Budget Approval One initial budget is approved, Congress must set spending limits by Sept. 15 – After which no new legislation can be passed to provide new/increased spending
Fiscal Policy Expansionary Policies- Fiscal policies that encourage economic growth – Tax cuts, higher spending Contractionary Policies- Fiscal policies that reduce economic growth – Higher taxes, less spending
Expansionary Policies Used to increase output Often used to stimulate the economy when in a recession
Expansionary Policies The government can: – Increase Spending High demand High prices Increased supply Increased employment – Cut Taxes Attempt to encourage more spending Not spending money on taxes, have more money to buy G/S (see above)
Contractionary Policies Govt. may want to slow down growth when demand is exceeding supply – High demand=increased price=inflation Decrease Govt. Spending Increase Taxes
Limitations of Fiscal Policy Difficult to change govt. spending – Much spending dictated by law (entitlements) Difficult to predict future of economy – Decisions often made based on past performance Results take time to show Political pressures for reelection Require team work w/ branches of govt.