Fiscal Policy

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Fiscal Policy

• Government Spending
• And
• Taxes

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Fiscal Policy
Fiscal policy is

• Government spending
• Increase stimulates the economy
• Decrease slow down the economy

• Taxes
• Increase slows down the economy
• Decrease Stimulates the economy

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Taxes

• Way to raise revenues
• Limit or regulate the use of products or services
• Give the competitive advantage to American made
  goods
• 1st income tax
• North during the civil war
• 16th amendment permanent tax since 1913

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Types of Taxes

• Proportional Taxes
• Flat rate taxes
• The same percentage of income from individuals at
  all income level
• Property tax

• Regressive Taxes
• Takes a larger percentage from members of
  low-income groups than high income groups
• Sales tax
• Progressive Taxes
• A larger percentage of income from a high income
  person than a low-income person
• Federal income tax

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Collecting Taxes

• Corporate Income Taxes
• Government taxes corporate profits
• Individual Income Taxes
• Tax on income

• Sales Taxes
• A regressive tax based on consumer spending
• Gift tax
• the transfer of money or property of over
  10,000.

• Property Taxes
• Tax based on the value of your property
• Social Security Taxes
• Withholding taxes (FICA) from workers paychecks

• Estate tax
• assets of the deceased
• Excise tax
• Tax on the manufacture, sale or consumption of an
  item

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Federal Budget in
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Nation Debt Charts and Graphs
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Demand Side Supply Side

• Keynesian economics
• Increase government spending
• Control demand to prevent extremes(inflation and
  depressions)
• Deficit spending and large government budget to
  stimulate the economy
• Save surplus for future
• Multiplier effect

• Reagan / Milton Friedman
• Cut taxes and reduce spending
• Producers create changes to deal with econ
  fluctuations Laissez faire
• Govt provides tax cuts for business to invest
  and expand
• Cut social program - competes with private sector
• Reduce the size of govt

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Demand side economics

• Cyclically balanced budgets
• Save money during peaks and expansions
• Spend during contractions and troughs
• When the economy is doing very poorly the
  government should take action
• Cut taxes for individuals
• Increases government spending

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Demand-side Economics

• Prior to Keynes
• Annually balanced budgets
• Lows were especially tough
• Concerns
• Booms and recessions arent always equal
• Politically it is easier to cut taxes than raise
  taxes
• It is also easier to increase spending than to
  cut programs
• Will we spend too much?

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Keynesian Economics

• John Meynard Keynes
• British economist
• Influenced FDRs New Deal
• Stimulate demand by increasing government
  spending and cutting taxes
• Government involvement to eliminate lows by using
  large budgets and deficit spending
• Increasing government spending is more effective
  than cutting taxes or cutting interest rates

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Presidents who used Demand-Side Economics

• FDR
• New Deal spending
• Kennedy
• Carter

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Supply-side economics

• Says law 19th century supply creates it own
  demand
• When an entrepreneur produces something it
  produces enough income in the economy to purchase
  whats produced
• What might be some obstacles to this belief?

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Supply-Side Economics

• Increasing the economic stability and growth by
  increasing the supply of goods and services
• Cut taxes as an incentives to increase production
• Prices drop
• Need for additional workers
• Increased consumer demand

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Reaganomics 1980s

• Reaganomics trickle down econ voodoo econ
• Based on Milton Friedman
• Tax cuts for producers to make capital
  improvements and increase aggregate supply
• Goal to decrease inflation and unemployment
• Increase the tax revenues
• Increase productivity as a nation
• Producers can handle the changes in the business
  cycle

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Justification for Supply-Side Economics

• Too much government discourages growth
• Demand side action increases inflation by
  increasing government spending and decreasing
  taxes
• The crowding out effect is when the government
  competes with the private sector for loans and
  resources
• 1. Cut government spending
• 2. Cut taxes for producers
• 3. Cut regulations set by government
• Government regulation increases cuts and hurts
  competition
• Too much bureaucracy or Red Tape

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Monetary and Fiscal Policy

• The economy is in a severe depression and
  something needs to be done to help the economy.
  What should be done?
• The economy is in the recovery phase but you are
  starting to see slight inflation. What should be
  done?
• The economy is feeling high levels of Inflation.
  Prices are skyrocketing. What should be done?
• The economy is in a recession. Demand is
  dropping companies are cutting jobs. What
  should be done?