Fiscal Policy

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Fiscal Policy

  • Expansionary and contractionary policy
  • Deficits and Surpluses
  • Built-in-Stability
  • Changes in the expenditures or tax revenues of the federal government
    • 2 tools of fiscal policy
      • Taxes - government can increase or decrease taxes
      • Spending - government can increase or decrease spending
      • Taxes and spending have an inverse relationship
  • Fiscal policy is enacted to promote our nation's economic goals: full employment, price stability, and economic growth
Deficits, Surpluses, and Debt
  • Balanced budget
    • Revenues = Expenditures
  • Budget deficit
    • Revenues < Expenditures
  • Budget Surplus
    • Revenues > Expenditures
  • Government debt
    • Sum of all deficits - sum of all surpluses
  • Government must borrow money when it runs a budget deficit
  • Government borrows from:
    • Individuals
    • Corporations
    • Financial institutions
    • Foreign entities or foreign governments
Fiscal Policy Two Options
  • Discretionary Fiscal Policy (action)
    • Expansionary fiscal policy - think defecit
    • Contractionary fiscal policy - think surplus
  • Non-Discretionary Fiscal Policy (no action)

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