Fiscal Policy- changes in the expenditures or tax revenues of the federal government.
2 tools of fiscal policy
1. Taxes- government can increase or decrease spending.
2. Spending- government can increase or decrease spending.
Deficits, Surplus, and Deficit
- balanced budget
+revenues= expenditures
(it has been 16 years since we have had one)
- budget deficit
+revenues < expenditure
-budget surplus
+revenues > expenditures
- government debt
+sum of all deficits - sum of all surpluses
-deficits
+government must borrow money when it runs a budget deficit
+government borrows from:
1. individuals
2. corporations
3. financial institutions
4. foreign entities of foreign government
Fiscal Policy Two Options
- discretionary fiscal policy (action)
+expansionary fiscal policy (think deficit)
+contraction fiscal policy (think surplus)
+Non- Discretionary fiscal policy (no actions)
Discretionary VS. Automatic Fiscal Policies
Discretionary-
+Increasing or decreasing governments spending and/ or taxes in order to return the economy to full employment discretionary policy involves policy makers doing fiscal policy in response to an economic problem.
CAN NOT HAPPEN AT THE SAME TIME
Automatic-
+unemployment compensation and marginal tax rates are examples of automatic polices that help militate the effects of recession and inflation. Automatic fiscal policy takes place without policy makers having to respond to current economic problems.
Expansionary Fiscal Policy (easy) VS. Contraction Fiscal Policy (tight)
* combat a recession *combat inflation
*increase government spending * decrease government spending
decreases taxes increase taxes
Automatic or Built in Stabilizers
-anything that increases the government's budget deficit during a recession and increases its budget surplus during inflation without requiring expect action by policy makers.
EX. transfer payments, social security, Medicare, medicate, unemployment, VA benefits
Tax Structures
- progressive tax system
+average tax rate rises with GDP
EQUATION: tax revenue
------------------
GDP
-proportional tax system
+average tax rate remains constant as GDP changes
-regressive tax system
+average tax rate falls with GDP
it might interest you to know that when a government deliberately alters its spending or taxes in order to achieve specific national economic goals, its action would be considered as a discretionary fiscal policy.
ReplyDeletehttps://www.youtube.com/watch?v=TY3JoxcyPAM
above is a link to a captivating video that sheds more light on the difference between discretionary and non-discretionary fiscal policy. you've got a nice blog by the way.
I find your note-taking skills and setup extremely useful when it comes to helping me understand this part of the unit. I was able to easily read and flow through this entire post.
ReplyDeleteHowever, I forgot, why can't discretionary and automatic happen at the same time?
Your note taking is very similar to mine which helped me to understand because it was clear. The video and pictures helped me to understand fiscal policy better
ReplyDeleteYour notes are very organized I really like the set up. It's extremely easy to understand everything that is being explained through out the blog. I do believe you should have bolder the titles of the smaller sections, it's a bit muddled together. I do think that if you added a video explaining it more in depth.
ReplyDelete