1. Chapter 15

2.  Setting Fiscal Policy: The Federal Budget  Fiscal year  Agencies write proposals (OMB)  Executive Branch creates a budget  Congress debates and compromises

3.  Fiscal Policy and the Economy  Expansionary Fiscal Policy ▪ Encourages growth through increased spending or tax cuts  Contractionary Fiscal Policy ▪ Reduce growth through decreased spending or higher taxes

4.  Limits of Fiscal Policy  Difficulty of Changing Spending Levels  Predicting the Future  Delayed Results  Political Pressures  Coordinating Fiscal Policy

5.  Classical Economics  Markets regulate themselves; Adam Smith  Keynesian Economics  John Maynard Keynes  Demand-side economics; encourages govt action  Use fiscal policy to avoid recession and inflation  The Multiplier Effect  Automatic Stablilizers ▪ Taxes and transfer payments(entitlements)

6.  Supply-Side Economics  Reagan  Focus on taxes  Laffer Curve  Lower taxes = increase output

7.  Balancing the Budget  Surplus vs Deficit ▪ Creating money ▪ Borrowing money (T-Bills, T-Notes, T-Bonds)  The National Debt  Total amount the govt owes to bondholders  Sum of all borrowing

8.  Is the Debt a Problem?  Crowding-Out Effect  Repay with interest  In-debt to other countries (national security)