1. The Tools of Fiscal Policy

2. When is the Fiscal Year? October 1 to September 30.
FY2014 will begin this coming Oct. 1.

3. Budget Process
Federal agencies send their money request to the Office of Management and Budget (OMB).
The OMB reviews agency requests and melds them into the President’s budget. In January or February, the President sends his budget to Congress.

4. Budget Process
Congress reviews budget, enacts several appropriations measures.
The President signs funding measures.
The President vetoes measures.
Congress can override if they have 2/3 votes.
If not enough votes, renegotiate.

5. 3 Types of Federal Budgets (a comparison of revenue and spending)
Balanced Budget
Revenue and Spending are equal
Surplus Budget
Revenue is greater than Spending
Deficit Budget
Revenue is less than Spending

6. Budget Explorer: The Complete US Federal Budget

7. Budget of the United States Government: Browse Fiscal Year 2008

8. U.S. National Debt

9. Fiscal Policy Conducted by the Government
Congress & the President
(Monetary Policy is conducted by the ___.)
FED

10. Fiscal Policy Toolbox What tools does the government
have to regulate the economy?
Tax policies
Spending programs
Who implements fiscal policy?
President/Congress

11. 2 main tools of fiscal policy are…
TAXES
Tax rates
Income, corporate, excise, FICA
Tax incentives
GOV’T SPENDING
Public goods, defense, social programs, etc.

12. 2 Types of Policy Loose (expansionary) Tight (contractionary)
Put more money in circulation (increase output.)
(FED would lower DR, lower RR, buy securities)
What can government do?
Tight (contractionary)
Pull money out of circulation (decrease output)
(FED would raise DR, raise RR, sell securities)

13. Fiscal Policy and the Federal Budget
II. Fiscal Policy to get us out of a recession…
a. Decrease taxes
b. Increase government spending
c. Moves the budget towards a
deficit budget

14. III. Fiscal Policy and Inflation
a. Increase Taxes
b. Reduce Government Spending
c. This will move the federal budget towards a surplus budget

15. John Keynes Economist with a very different view from Adam Smith.
What did Adam Smith believe?
Laissez Faire- Govt not involved
Keynes said that the government SHOULD get involved in the economy
(to a limited extent.)
Father of Fiscal Policy= John Maynard Keynes

16. Keynesian Theory
TAXES- The amount of money individuals and businesses have to pay to the govt.
During a slowdown of the economy
LOWER taxes
During an inflationary period
RAISE taxes

17. Demand-Side Fiscal Policy
Cut taxes & increase Govt spending during a recession=
Expansionary Fiscal Policy
Increase taxes & decrease spending to fight Inflation=
Contractionary Fiscal Policy

18. Keynesian Theory TAX INCENTIVES (CREDITS)
Given to businesses and individuals to get them to do something the government wants them to do. (buy fuel-efficient cars, hire people coming off of welfare.)
During a slowdown of the economy
INCREASE tax incentives
During an inflationary period
DECREASE tax incentives.

19. Keynesian Theory GOVERNMENT SPENDING
Buying all the things that government provides, from highways, to military, to education.
During a slowdown of the economy
INCREASE spending.
During an inflationary period
DECREASE spending.

20. Application
The government cuts business and personal income taxes and increases its own spending.
What type of policy are they pursuing?
Expansionary Fiscal Policy
The government reduces the wages of its employees while raising taxes on consumers and businesses.
Contractionary Fiscal Policy

21. AUTOMATIC STABILIZERS
Public transfer payments
Money being transferred from workers paying taxes, to non-workers.
Unemployment benefits
Welfare, food stamps, Medicaid
Social security, Medicare
Mandatory (automatic) items for budget.
Income taxes
Personal income taxes
Corporate income taxes