Fiscal Policy

I.            Fiscal Policy- actions by congress to stabilize econ., tools are either increasing or decreasing taxes or spending

II.            Promotes: full employment, economic growth,  & price stability

III.            Types of Fiscal Policy:

IV.            Discretionary Fiscal Policy (action):

a.      Expansionary: think deficit, the GAS, reduce unemployment and increase GDP

b.      Increase govt spending, decrease tax, AD shifts right

c.       Contractionary: think surplus/ the BRAKE,

d.     laws that reduce inflation, decrease GDP

V.            Decrease govt spending, tax increase, combo

a.      Non-Discretionary (NO action):

VI.            Budget

VII.            Balanced Budget: revenues = expenditures

VIII.            Deficit: revenues < expenditures

IX.            Surplus: revenues > expenditures

X.            Govt. Debt: sum of all debts - sum of all surplus

XI.            Govt. in deficit must borrow money from..

a.      Individuals (taxes)

b.      Corporations

c.       Financial Institutions

d.     Foreign entities/govt.

XII.            Taxes

a.      Progressive Taxes: take larger % of income from high income groups

                                                  i.      Ex: current federal income tax

b.      Proportional Tax: flat rate, same % from all groups

                                                  i.      Ex: 20% flat rate

XIII.            Regressive: low income are taxed higher %

a.      Ex: sales tax

XIV.            Automatic Stabilizers

a.      Anything that increases the government's budget deficit during a recession and increases its budget surplus during inflation without requiring explicit action by congressmen.

XV.            Transfer payments

a.      Welfare checks

b.      Food stamps

c.       Unemployment checks

d.     Corporate dividends

e.      Social Security

            f.    Veteran's benefits