1. Data- Fiscal Policy
Government real spending (G), Transfer Payments (Tr),
And Taxation (T)
Fall 2013 with spring 2015 update data at end

2. G+Tr T
Federal Budget= Government Expenditures minus Receipts= G +Tr - T

3. G+Tr T
u black right scale
What should the government do (Keynesian perspective) when the u is rising fast?
What happens naturally to Tax Revenue when u falls? Is T endogenous?
What is a better stimulus increase G or Tr, or decrease T? Better way to balance budget?

4. Government Shutdown
It would send a substantial share of the non-security workforce home and disrupt services across the government. More than 800,000 federal workers would be furloughed, according to agency plans submitted to the White House. (The federal government has about 2.8 million civilian workers, or just over 2 million excluding the U.S. Postal Service.)

5. Economic impact: The U. S
Economic impact: The U.S. economy’s growth rate would be slowed by an annualized 0.15 percentage point per week of shutdown, according to economists at Morgan Stanley. (The economy grew at a 2.5% pace in the second quarter, according to the Commerce Department’s latest estimate.)

6. That’s the direct effect
That’s the direct effect. The bigger risk would be from the hit to business and consumer confidence. Both are already down, while gauges of uncertainty about government policy are up. Damage from the fight alone could restrain investment and spending beyond the period of a shutdown

8. Which ones of these are spending on real goods and services= G?
Which ones are transfer payments= Tr ?
Total federal expenditures= G + Tr

9. Federal Government Total Expenditures= G + Tr
In current (not inflation adjusted) dollars

10. Blue= Total Federal Expenditures= G + Tr
Red= Total Federal Receipts= T
What happens to G during recessions? What happens to T? Why?

11. What has happened in the recovery to tax revenues?
Have total outlays (blue) risen since 2011?
What has happened to the budget gap (federal deficit)=
Outlays (G + Tr) minus Revenue (T)?
Should we be hysterical about what’s happening to the federal deficit?

12. Do the deficit patterns support the view that Congress should shut down
The federal government (G and Tr) to help out the deficit?

13. As the unemployment rate rose during recession, what kinds of
Federal Outlays= G + Tr
Unemployment rate
Federal Tax Revenue
As the unemployment rate rose during recession, what kinds of
government outlays naturally increased?
How does the unemployment rate (right scale) affect Tax Revenue?
With layoffs from a federal shutdown, what will happen to Tax Revenue?
Total GDP, from a Keynesian perspective?

14. Blue= Current Federal Government Expenditures Total
Green= G= real federal spending
Blue minus Green= Transfer Payments= Tr

15. Defense Spending right scale; approx
Defense Spending right scale; approx. ¼ of Government “discretionary spending”
Red Left Scale= Total federal spending on real goods & services=G
Blue Left Scale= G + Tr

16. Federal Government Transfer Payments

17. Budget Debate: How to Reduce the Federal Deficit
Republicans
No Tax Increases on Wealthy
Cut Transfer Payments to Middle Class and Poor (social security, medicare, medicaid, Unemployment insurance, etc.)
Cut Real G on everything but defense
Cut education, transportation, energy, agriculture, head start
Democrats (Obama) & Simpson/Bowles
Balanced approach
Increase taxes (especially on wealthy)
Revise Medicare, Social Security to Bring Balance
Cut G on least harmful places (defense contracts)
Increase G on investments in Future (energy independence, education, head start)

18. Blue- Congressional Budget Office “Potential Real GDP” based on
labor force, raw materials, capital stock (supply side factors)
Red- Actual Real GDP
If potential is much greater than actual, what should the Fed and the
Federal government do to reduce the gap from a Keynesian point of view?