1. Today Chapter 14 Vocabulary Section 2 and 3 Yellow vocabulary page 412 except for those covered last class period Yellow vocabulary page 423 Will check for grade Next Test over 14, 15, 16 (Multiple Choice) Not open book Final exam will not be open book. It will consist of 60-75 questions over the entire course

2. Egle Wizdum Qwiz??? Taday ya gota lern abot fizcal polacee. Now fizcal polacee iz how tha guvment uzes texs and spendng monee ta halp tha econame n tha peepl!

3. San Bernardino, gun control, demand for fire arms and ammunition, workplace violence, and terrorism D2 D1 Quantity Price

4. Fiscal policy is the federal government’s use of taxing and spending to keep the economy stable. What Is Fiscal Policy? S2 S1Decreasing supply in revenue but increased spending the by government increases demand for loans. Thus, the government goes further in debt D1 D2

5. Key Terms for Chapter 15 Keynesian economics: government spending and tax policies to stimulate the economy (same as demand-side economics) The multiplier: Change in overall spending caused by a change in investment spending (about 2x). $50 billion in investment spending decreases will cause overall decline in spending of $100 billion Supply-side policies (increase economic growth by increasing production) Laffer Curve: Drop in federal tax rate will increase federal revenue/rise in tax rate will decrease revenue Deregulation: Relaxation or removeal of government regulation Aggregate supply: the total value of all goods and services supplied Aggregate demand: the overall total value of all goods and services demanded Equilibrium price: where AS/AD meet (amount of GDP)

6. National Debt Historically, debt increases during wartime when government spending increases faster than taxation. and Beginning in the 1980s, the nation began to run a large debt, even though the country was not at war. This was due to increased defense spending, tax cuts, and during the mid- 1980s. http://www.usdebtclock.org/http://www.usdebtclock.org/

7. Fiscal Policy and the Federal Budget The federal government prepares a new budget for each fiscal year. A fiscal year is a twelve-month period that runs from October 1 to September 30. Federal Budget: A plan for the federal government’s revenues and spending for the coming year. The government spends around $200-300 million every hour or $2-3 Trillion every year. Appropriations bill: a bill that sets money aside for specific spending.

8. The total level of government spending can be changed to help increase or decrease the output of the economy. Fiscal Policy and the Economy Expansionary Policies Fiscal policies that try to increase economic output are known. Contractionary Policies Fiscal policies intended to decrease economic output.

9. Effects of Expansionary Fiscal Policy Total output in the economy High outputLow output High prices Low prices Price level Aggregate supply Original aggregate demand Lower output, lower prices Higher output, higher prices Aggregate demand with higher government spending Expansionary Fiscal Policies Increasing Government Spending buy more goods and services. It triggers a chain of events that raise output and creates jobs. Cutting Taxes consumers and businesses have more money to spend or invest. This increases demand and output.

10. Effects of Contractionary Fiscal Policy Total output in the economy High outputLow output High prices Low prices Price level Aggregate supply Higher output, higher prices Original aggregate demand Lower output, lower prices Aggregate demand with lower government spending Contractionary Fiscal Policies Decreasing Government Spending May lead to slower GDP growth. Raising Taxes consumers and businesses have fewer dollars to spend or save. This also slows growth of GDP.

11. Mandatory and Discretionary Spending Spending Categories Mandatory spending refers to money that lawmakers are required by law to spend on certain programs or to use for interest payments on the national debt. Discretionary spending is spending about which government planners can make choices.

12. Entitlements Social Security –Social Security is the largest category of government spending. Medicare –Medicare pays for certain health benefits for people over 65 or people who have certain disabilities and diseases. Medicaid –Medicaid benefits low-income families, some people with disabilities, and elderly people in nursing homes. Medicaid costs are shared by the federal and state governments. An entitlement program is a social welfare program that people are “entitled” to if they meet certain eligibility requirements.

13. Limits of Fiscal Policy Difficulty of Changing Spending Levels –In general, significant changes in federal spending must come from the small part of the federal budget that includes discretionary spending. Predicting the Future –Understanding the current state of the economy and predicting future economic performance is very difficult, and economists often disagree. This lack of agreement makes it difficult for lawmakers to know when or if to enact changes in fiscal policy. Delayed Results –Even when fiscal policy changes are enacted, it takes time for the changes to take effect. Political Pressures –Pressures from the voters can hinder fiscal policy decisions, such as decisions to cut spending or raising taxes.

14. Keynesian Economics Keynesian economics is the idea that the economy is composed of three sectors — individuals, businesses, and government — and that government actions can make up for changes in the other two. Keynesian economists argue that fiscal policy can be used to fight both recession or depression and inflation. Keynes believed that the government could increase spending during a recession to counteract the decrease in consumer spending. However, it failed to deal successfully with inflation during the 1970s.

15. Laffer Curve High revenues Low revenues 100% High taxes 0% Low taxes 50% Tax revenues Tax rate a b c Supply-Side Economics Supply-side economics stresses the influence of taxation on the economy. Supply-siders believe that taxes have a strong, negative influence on output. The Laffer curve shows how both high and low tax revenues can produce the same tax revenues.

16. A balanced budget is a budget in which revenues are equal to spending. Balancing the Budget (15.3) Budget Surpluses A budget surplus occurs when revenues exceed expenditures. Budget Deficits A budget deficit occurs when expenditures exceed revenue.

17. The National Debt

18. The Difference Between Deficit and Debt The deficit is amount the government owes for one fiscal year. The national debt is the total amount that the government owes. Measuring the National Debt In dollar terms, the debt is extremely large: Over $17 trillion at the present time. Economists often measure the debt as a percent of GDP. The national debt is the total amount of money the federal government owes. The national debt is owed to anyone who holds U.S. Savings Bonds or Treasury bills, bonds, or notes.

19. Is the Debt a Problem? Problems of a National Debt To cover deficit spending the government sells bonds. Every dollar spent on a government bond is one fewer dollar that is available for businesses to borrow and invest. This encroachment on investment in the private sector is known as the crowding-out effect. The larger the national debt, the more interest the government owes to bondholders. Dollars spent paying interest on the debt cannot be spent on anything else, such as defense, education, or health care. Other Views of a National Debt Keynesian economists argue that if government borrowing and spending help the economy achieve its full productive capacity, then the national debt outweighs the costs.

20. Stossel Government Debt