Fiscal Policy

EQ: What’s all the commotion about government spending?

Review Ch 9 Get in groups of two :

Group member 1 – using the text, develop 4 questions from ch 9 using the following terms: Personal Income Tax, Regressive, Excise, and Payroll

Group member 2 - using the text, develop 4 questions from ch 9 using the following terms: Progressive, proportional, FICA, and sales tax

Once you have your questions developed (and written down), trade questions and each answer

Where does the government spend our money? Where do you think?

Definition Fiscal - Government’s attempt to

regulate the economy by taxation and government spending

Two Types of Fiscal spending

Automatic/mandatory Policy that is already in legislation to take affect without additional work by Congress

Discretionary Policy that

requires a new act of Congress to establish.

Discretionary

EOCT Review1. Draw a Productions Possibilities Curve showing the trade-off

between guns and butter. What do “guns” and “butter” represent?

2. Name 4 factors that affect demand.3. Name 4 factors that affect supply.4. Draw a perfectly elastic demand curve.5. Draw a perfectly inelastic demand curve.6. What happens at equilibrium for supply and demand?7. At what point is profit maximizing level of output reached?8. Minimum wage is an example of a price ___________. What

happens with a price floor?9. Describe the differences between perfect competition and

monopoly.10. What is the equation for total revenue?

Fiscal PolicyExpansionary Policy

Increases AD Increases GDP Stimulates the

economy Gets us out of a

recession

Contractionary Policy

Decreases AD Decreases GDP Slows down the

Economy Prevents inflation

Review What are two types of fiscal spending?

Explain What type of policy decisions are used

when the economy is contracting or in recession?

What type of policy decisions are used when the economy is expanding or experiencing high inflation?

Fiscal Policy Tools

Expansionary Cut in Taxes

Personal/Corporate Income

Increase in Government spending

Deregulation of Business

Increase of social programs

Contractionary Increase in taxes Decrease in

Government Spending

Increase in Business Regulations

Cut in social programs

Progressive Income Tax Structure

Critical Thinking Why might the government want to

engage in expansionary fiscal policy? Contractionary?

Obama’s Jobs Plan

Interpret the cartoon…1 CDs; 2 CMs

Recap Video http://www.youtube.com/watch?v=1qhJP

qyJRo8

What is the objective for AD?

1. The government cuts personal income-tax rates.

2. The government eliminates favorable tax treatment on long-term capital gains.

3. Incomes rise; as a result, people pay a larger fraction of their income in taxes.

4. As a result of a recession, more families qualify for food stamps and welfare benefits.

What is the objective for AD? 5. The government eliminates the deductibility

of interest expense for tax purposes.

6. The government launches a major new space program to explore Mars.

7. The government raises Social Security taxes.

8. Corporate profits increase; as a result, government collects more corporate income taxes.

9. The government raises corporate income tax rates.