The 2008 Bailout and Fiscal Policy

1. The 2008 Bailout and Fiscal Policy

2. Remember • Business Cycles – We were in recession 07 --08 --09--10

3. Why do we need a bailout? • Businesses were failing due to stock market crash • Mostly bulky large businesses which were wrapped up in the stock market with options, derivatives, futures, etc. • Entire industries and countries were collapsing • GDP declining

5. Too big to fail? • The government determined that some companies were too big to fail • General Motors • Ford Motors • Chrysler • Bank of America • Merrill Lynch • AIG • What makes a company too big to fail?

6. Fiscal Policy • Fiscal policy is the government expenditure and revenue collection to influence the economy • Expansionary • Government spends more than it has to boost the economy • Put money in people’s pockets • Contractionary • Government increases taxes to slow down the economy • Take money out of people’s pockets

7. Fiscal Policy • Contractionary Expansionary

8. Aggregate Supply/Demand • The United States • Aggregate refers to the entire economy instead of one sector • Instead of supply and demand for pumpkins, this is overall supply and demand GDP

9. How expansionary fiscal policy affects Agg D and S • By pursuing expansionary fiscal policy, the government can boost demand • Giving people money is increasing their income • Remember that income is a determinant of demand AD’ GDP

10. How expansionary fiscal policy affects Agg D and S • Expansionary fiscal policy has 2 effects: • 1. Increases output/GDP • 2. Increases prices • This is called inflation AD’ GDP

11. Mr. Garcia

12. RULES!!!!!

13. This Week Monday – Tuesday – Bailout Wed – Fiscal Policy Thurs. – Book Work Friday – Articles Monday – Review of Cycles and Fiscal Policy/Quiz Tuesday – Monetary Policy Activity Wednesday – Monetary Policy