Unit 3: Fiscal Policy 3/6/17

How does the govt stabilize the economy?
- The government has two different tool boxes it can use;
1. Fiscal Policy- actions by congress to stabilize the economy

Changes in expenditures or tax  revenues of the federal government
2 tools of Fiscal Policy:
 Taxes- govt can increase or decrease taxes
 Spending - govt can increase or decrease spending
Fiscal Policy is enacted to promote our nations economic goals: Full Employment, price stability, economic growth


Deficits, Surplus, and Debt:
Balanced Budget
- Revenues = Expenditures

Budget Deficit
- Revenues < Expenditures

Budget Surplus
- Revenues > Expenditures

Government Debt
(Sum of all deficits - sum of all surpluses)

Government must borrow money when it runs a budget deficit

Government borrows from:
- Individuals
- Corporations
- Financial Institutions
- Foreign entities of foreign governments

Fiscal Policy Two Options:
1. Discretionary Fiscal Policy (action)
- Expansionary Fiscal Policy- think deficit
- Contractionary Fiscal Policy- think surplus
2. Non-Discretionary Fiscal Policy (no action)

Three Types of Taxes:
1. Progressive taxes- takes a larger percent of income from high income groups 
Ex: Current Federal Income Tax System

2. Proportional taxes (flat rate)- takes the same percent of income from all income groups 

Ex: 20% flat income tax on all income groups

3. Regressive taxes- takes a larger percent of income from low income groups

LINK:
http://www.glencoe.com/sec/socialstudies/economics/econprinciples2001/pdfs/C09-03C-820487.pdf