Chapter 15.1 notes

1. Chapter 15.1 notes Fiscal Policy

2. Fiscal Policy • The federal government’s attempt to stabilize the economy through taxing and spending. • Taxing – raising them takes money out of people’s pockets, so they spend less; lowering them allows people to spend more. • Spending – the government can spend money in the economy to help producers and workers, but it can cause higher deficits.

3. Expansionary Fiscal Policy • Plan to increase Aggregate Demand and stimulate the economy = increase spending and decrease taxes

4. Contractionary Fiscal Policy • Plan to decrease AD so that inflation is reduced (economy growing too rapidly) = increase taxes, decrease spending

5. How has this affected us recently? • During recession, gov’t dramatically increased spending and reduced taxes… causing HUGE deficits • Which is very much political – now must find a way to close gap

6. Chapter 15.3 notes Debt vs. Deficit

7. Deficit vs. Debt • Budget Deficit – gov’t overspends based on a year – contribute to national DEBT • Budget Surplus – gov’t takes in more than it spends • National debt – total amount gov’t owes • How much is it? • http://www.usdebtclock.org/

8. Causes of deficits • National emergencies – wars, weather events, etc. • Need for public goods and services – roads, flood control, etc. • Stabilization of the economy – creating projects to give jobs, help economy • Help society – S.S., Medicare, Medicaid, unemployment

9. How does gov’t get extra $? • Gov’t savings bonds and treasuries • People, state and local gov’ts, financial institutions, etc hold these bonds • Foreign gov’ts also invest – China and Japan have largest amount by foreigners • Majority is owed to Americans and parts of the gov’t