Unit 10: Fiscal Policy in Practice- The U.S. Federal Budget

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Unit 10 Fiscal Policy in Practice- The U.S.
Federal Budget
CreatedSept 20by Jim Luke. Creative Commons
License, NC-AS.
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Keynesian Successes Failures

• Success
• Ended Great Depression
• Mild recessions ever since
• Fine tuning appeared to work 1950s 1960s
• Short, mild, infrequent recessions
• Low inflation
• Stagflation of 1970s
• Military Keynesianism
• Political Economic Opposition

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Problems with Aggregate Demand Management
Whats the Best Policy?

• Automatic vs. Discretionary Policy Response?
• Fiscal vs. Monetary Policy

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Implementing the Right Discretionary (Stimulus)
Policy

• Estimating size of problem what is full
  employment?

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Stimulus Implementation Problem Time lags

• Recognition Political agreement
  implementation multiplier time

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Tax-based Stimulus Works Best When Not Seen as
Temporary

• Current vs. permanent income

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AD Management is Weak against Supply Shocks
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Political Issues with AD management

• Political business cycle
• Which type of stimulus?
• Tax cut? Or Spending Increase?
• Whose taxes? Which spending?

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The Budget Balance Deficit vs. Surplus
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Federal Budget

• Budget refers to a particular years incomes and
  outflows
• Same as income statement or profit-and-loss
  statement for a person or firm.
• Particular fiscal year.
• Government fiscal years run from Oct 1 to Sept 30
• The Budget Balance refers to whether income
  exceeds outflow

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Deficits Surpluses Change Debt

• Deficits add to Total Debt
• Surpluses reduce Total Debt

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What Is The Social Security Program?

• Started in Great Depression
• Intergenerational transfer / social insurance
  program
• all developed, industrialized nations have one

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How Does Social Security Work?

• Intergenerational transfer program current
  workers pay current retirees
• NOT a savings or retirement investment program
• NOT like a 401(k) or an IRA.
• Current retiree benefits provided by taxes paid
  by current workers.
• Amount of benefits that can be paid depends
  upon
• Ratio of workers per retiree
• How much workers earn
• Tax rate on payroll

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What Is the Social Security Trust Fund?
By law, the Social Security Administration is
required to invest the Social Security Trust
Fund in U.S. Government bonds.
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Will Social Security Be There When You Retire?

• YES,unless Politicians choose to take it away.