1. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. CHAPTER 11 Fiscal Policy and Automatic Stabilizers: What Managers Need to Know

2. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-1 Categories of U.S. Government Taxation, 2006 Source: U.S. Economic Report of the President, 2006, http://www.gpoaccess.gov/eop/2006/2006_erp.pdf, p. 377 (accessed September 17, 2006).

3. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-2 Categories of U.S. Government Spending, 2006 Source: U.S. Economic Report of the President, 2005, http://www.gpoaccess.gov/eop/2006/2006_erp.pdf, p. 377 (accessed September 17, 2006).

4. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-3 Types and Maturities of Government Securities

5. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-4 Owners of U.S. Government Debt, 1981–2006 Source: Federal Reserve Bank of St. Louis, Economic Data—FRED II, http://research.stlouisfed.org/fred2/ (accessed September 17, 2006).

6. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-5 Effects of Government Borrowing in the Real Loanable Funds Market

7. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M11-1 Crowding Out with Perfectly Elastic, Perfectly Inelastic, and an Upward-Sloping Supply of Real Loanable Funds

8. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-6 Effects of Increased Government Borrowing in the Real Goods Market

9. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M11-2 Effects of Government Borrowing in the Real Loanable Funds Market

10. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-7 Budget Surpluses Increase the Supply of Real Loanable Funds

11. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-8 U.S. Government Deficits and Surpluses, 1970–2005 Source: The White House, Office of Management and Budget, 2005, from Federal Reserve Bank of St. Louis, Economic Data—FRED II, http://research.stlouisfed.org/fred2/ (accessed September 17, 2006).

12. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-9 Actual Deficit  Active Deficit + Passive Deficit

13. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-10 Neutral Fiscal Policy: Active Deficit = 0

14. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M11-3 Assumptions for Calculating the Active and Passive Deficits

15. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M11-4 Actual Deficit = Active Deficit + Passive Deficit

16. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit M11-5 Neutral Fiscal Policy: Active Deficit = 0

17. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-11 Expansionary Fiscal Policy: Active Deficit = $30 Billion

18. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-12 Contractionary Fiscal Policy: Active Surplus

19. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-13 Lags in Fiscal Policy

20. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-14 Total U.S. Public Debt, 1966–2006 Source: Federal Reserve Bank of St. Louis, Economic Data—FRED, http://research.stlouisfed.org/fred2/ (accessed September 17, 2006).

21. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-15 U.S. Real Per Capita Government Debt, 1966–2006 Source: Federal Reserve Bank of St. Louis, Economic Data—FRED, http://research.stlouisfed.org/fred2/ (accessed September 17, 2006).

22. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-16 Changes in a Government’s Balance Sheet  Assets   Liabilities +  Stockholders’ Equity

23. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-17 U.S. Government Debt-to-GDP Ratio, 1966–2006 Source: Federal Reserve Bank of St. Louis, Economic Data—FRED, http://research.stlouisfed.org/fred2/ (accessed September 17, 2006).

24. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-18 International Comparison: Government Debt-to-GDP Ratios of Developed Nations for 2006 Source: OECD, Annex Table 32, ‘‘General Government Gross Liabilities: Percent of Nominal GDP,’’ http:// www.oecd.org/dataoecd/5/51/2483816.xls (accessed September 17, 2006).

25. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-19 A Nation’s Monetary Base Changes When Our Imaginary Horizontal Line Is Crossed

26. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-20 Government Taxes Have No Effect on the Monetary Base

27. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-21 Monetary Effects of Government Transfers to the Central Bank

28. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-22 Government Deposits at Central Banks as a Percentage of Total Central Bank Liabilities: 2002 Source: Richard W.Kopcke, ‘‘The Practice of Banking in Other Industrialized Countries,’’ New England Economic Review, Second Quarter 2002, p. 7. Also available at http://www.bos.frb.org/economic/neer/ neer2002/neer202a.pdf (accessed September 17, 2006).

29. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-23 Monetary Effects of Government Spending

30. Copyright© 2008 South-Western, a part of Cengage Learning. All rights reserved. Exhibit 11-24 Effects of Government Borrowing on a Nation’s Potential Money Supply