Unit 3; Day 6- Fiscal Policy

Fiscal Policy-Changes in expenditures or tax revenues of the federal government
      2 tools of fiscal policy- taxes gov can increase decrease; spending gov can increase decrease

More info. on FP
Fiscal Policy Video

Balanced budget
Revenues= expenditures
Budget deficit
Revenues< expenditures
Budget surplus
Revenues > expenditures

Govt debt= sum of all deficits - sum of all surplus
Government must borrow when in deficit
   From individuals, corporations, financial institutions, foreign entities

Discretionary fiscal policy (action)
   Expansionary= deficit
   Contractionary= surplus
Non-discretionary policy (no action)

Discretionary- increase or decrease gov 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
Automatic- unemployment compensation and marginal tax rates are examples of automatic policy that help mitigate the effects of recession and inflation. Automatic fiscal takes place without policy makers having to respond to current economic problems

Expansionary - “easy” combat recession, increase gov spending, lower taxes
Contractionary- “tight” combat Inflation on, lower gov spending, increase taxes

Automatic or built in stabilizers-
Anything that increases gov budget deficit during a recession and increases it's budget surplus during inflation without requiring explicit action by policymakers
      Unemployment comp.
      Welfare and social security
      Medicare medicaid
      VA benefits

Progressive tax system
      Average tax rate(tax revenue/gdp) rises with gdp
Proportional tax system
      Average tax rate remain constant as gdp changes
Regressive tax system
      Average tax rate falls with gdp