1. Chapter 17 Section 2 and 3
Fiscal Policy

2. Clip of the Day

4. Fiscal Policy
Federal government’s use of taxation and spending policies to affect over business activity.

5. John Maynard Keynes
Believed that the forces that affect aggregate demand and aggregate supply move too slowly – Gov’t therefore needs to step in.
Keynesian Economics

6. Circular Flow of Income and Output
Economic model that shows the flow of goods, services, wages, taxes, etc… between consumers, businesses, and federal government.

8. Leakages
When consumers save and/or government brings in taxes: money is removed from the circular flow/economy.

9. Cont.
Offset these leakages through government spending and business investment.
Investing – Purchasing new plants and equipment or increasing inventories. Much of this funding comes from savings (which is part of the leakage problem).
Ideally injections would offset leakages

10. Government’s Role
Demand-Side Policy = Government tries to stimulate economic growth through the creation of jobs
Supply-Side Policy = Promoting economic growth through tax breaks for businesses

13. Deficit Spending Spending more than is earned each year.
2010 Budget est. (proposed by Obama)
Revenue – $2.38 trillion
Spending - $3.55 trillion
Deficit - $1.17 trillion

14. National Debt
Debt owed by the Federal Government (Also called Public Debt)
As of May 25th, 2010, the total U.S. federal debt was $13,002,469,919,800.58

15. Taxes
Based on either ability to pay or by in proportion to the amount used.
Proportional Tax – Always pay the same % (Ex. MI State Income Tax)
Progressive Tax – The more money you make the higher % you pay (Federal Income Tax)
Regressive Tax – The less you make the more you pay