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Fiscal Policies

Fiscal Policies. Essential Questions: How does the Keynesian approach to stimulating the economy differ from the Reaganomics approach?. Mandatory Spending -

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Fiscal Policies

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  1. Fiscal Policies Essential Questions: How does the Keynesian approach to stimulating the economy differ from the Reaganomics approach?

  2. Mandatory Spending - spending that is not dependent on periodic appropriations bills. Consists mostly of “transfer payments” (such as Social Security benefits, Medicare, and Medicaid). Also includes salaries of federal judges and interest on the debt. This spending fulfills promises of the past.

  3. Discretionary Spending – spending that requires an annual appropriations bill from Congress (includes decisions on how much money to spend on National Defense, Homeland Security, roads, schools, etc.)

  4. John Maynard Keynes vs. F.A. Hayek Video Song

  5. “Fear the Boom and Bust”Keynes • “I want to steer markets”… [Hayek] “I want them set free” • “The advice, real simple, boost aggregate demand!” • “C, I, G, all together gets to Y” • “You see it’s all about spending, hear the register cha-ching”…”We need more government spending, now it’s stimulus season” • “Like I said, in the long run we are all dead” • “That’s why the state should fill the gap with stimulus” • “Public works, digging ditches, war has the same effect” • “The multiplier driving higher the economy’s health” • If there’s a “liquidity trap”…“deficits could be the cure”

  6. “Fear the Boom and Bust”Hayek • “you provide them with cover to sell us a free lunch then all we’re left with is debt” • “Real savings come first if you want to invest” • “It’s the boom that should make you feel leery”…“the boom plants the seeds for its future destruction” • “And the grasping for resources reveals there’s too few. So the boom turns to bust as the interest rates rise”

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