Fiscal PolicyUse of government spending and revenue collection to influence the economy

Fiscal

0Taxes and expenditures of huge amounts of money0Spends $250 million every hour0$6 billion a day0$2.3 trillion a year0Fiscal policy attempts to achieve economic growth,

full employment, and price stability

Federal budget

0Written document outlining how much government expects to receive and how they will spend it- Oct 1-Sept 30

0Office of Management and Budget OMB-calculates and oversees budget-gives the President a budget report on spending

0CBO-Congressional Budget Office- analyzes and collects all date on budget

0Appropriations- spending bills from Congress

Fiscal Policies

0Expansionary policies- increase output1. Increase government spending2. Cut taxes0Contractionary policies- decrease output01. Decrease government spending02. Raise taxes0Difficult- debt, predicting economy, expenditures SS,

medicare, etc,,,0Getting President and Congress to work together

Fiscal Options

0Classical Economics- free market believers0Great depression casted doubts0Keynesian Economics-John Maynard Keynes0Economy made up of 3 sectors-individuals, business,

and government. Government should use policies to influence economy

0Avoid recessions and depressions, control inflation, 0Multiplier effect- $1 govt spending creates $1 in

economic activity in economy

Fiscal Options

0Demand side economics- govt spending + tax cuts will increase demand= econ growth

0Supply side economics- tax cuts spur economic growth.

0Balance- revenues is the key!!!!!!!!!0US has used all versions/combinations of fiscal

options

Budget Deficits/National Debt

0Budget SHOULD balance revenues=expenditures- Not happening

0Budget surplus- revenues exceed expenditures0Budget Deficit- expenditures exceed revenue0How to pay for deficit?0Print money- leads to inflation0Hyperinflation- very high inflation0Borrow money- sell bonds/promisory notes0Treasury Bills, Treasury Notes, Treasury Bonds

National Debt

0All money the Federal government owes to bondholders- China

0Out of control today0Problems with National Debt01. Reduces funds available for businesses to invest-

crowding out effect02. Government must pay interest to bond holders-

China