1. Fiscal Policy

2. What is Fiscal Policy?
Government use of taxes and government spending to affect the economy

3. Types of Fiscal Policy Expansionary Fiscal Policy
Used to increase aggregate demand in a weak economy
Contractionary Fiscal Policy
Used to reduce aggregate demand and slow the economy if expanding too rapidly

4. Tools of fiscal policy Public Transfer Payments
Progressive Income Taxes
Other Taxes
Government Spending

5. Demand side economics
Until Great Depression, government did little to influence economy
John Maynard Keynes proposed Keynesian economics:
Idea that during recession government should stimulate aggregate demand
Basis of demand-side fiscal policy—policy to stimulate aggregate demand

6. Gov’t & demand-side policies
The Role of Government
Keynes argued for government spending to create jobs, increase income
Also lower taxes to encourage consumer spending, business investment
“Stimulus Spending”

7. Gov’t & Demand-Side Policies
Sometimes demand-side policies work; e.g. World War II production
Difficult to discontinue popular programs after recession
Demand-side policies ineffective for stagflation
slow economic growth with unemployment and inflation

8. Supply side economics
Supply-side economists favor cutting individual, corporate taxes
to encourage people to work, save, invest more
reducing highest tax brackets frees income to most likely investors
Favors lower government spending: if less revenue is needed, government can lower taxes
Favor less government regulation: cuts production costs, increases aggregate supply

9. The Federal Deficit and debt
All levels of government struggle to achieve a balanced budget
Budget surplus occurs when government takes in more than it spends
Budget deficit occurs when government spends more than it takes in
Deficit spending—spending more than revenues for specific budget year
National debt—the total amount of money the government owes

10. The federal deficit and debt
Four main reasons for deficit spending
National emergencies usually require massive spending beyond normal budget
Building public goods and services is expensive, work takes years
Public projects to stimulate, stabilize weak economy need large sums of money
Entitlement programs that people depend on are expensive

12. The national debt
The Current Debt
On September 20, 2017, national debt was $20,164,808,111, (U.S. Treasury)$19,786,440,755,303.80
Federal deficits and debt increased during 1980s, 1990s
In 1981, debt was 33 percent of GDP; in 2006 was nearly 68%
$20,164,808,111,509.90
Today (Q4 2017) 105%!!!