Fiscal Policy Fiscal Policy - Government effort to control the economy and maintain stable prices, full employment, and economic growth. Fiscal Policy deals with adjusting government spending (G) and tax revenue (T) in order to achieve these goals. IT is aimed at manipulating the federal budget. Macro Economics = Looking how the United States as a country deals with financial circumstances.

Fiscal Policy and Graphing Notes Three Macroeconomic Goals: -Inflation @ 3-4% or less -Unemployment @ 5% or less -Economic Growth @ 3-4 % or more

Inflation Too much money in the money supply The value of the dollar goes down Inflation usually goes up at a rate of 3% a year Unemployment People out of work = no money or income = little to no spending = business decline = fire workers = an endless cycle!

4 types of Unemployment Frictional Unemployment – the time needed for the employer to find a match and the right employee. 2. Structural Unemployment - Job seekers don’t have the skills needed by the employer. 3. Seasonal Unemployment – Seasonal changes cause a person to lose a job. 4. Cyclical Unemployment- Out of work because of a recession.

Recession High Unemployment Low economic growth People are not spending / in turn little growth in businesses / little revenue forces businesses to fire employees!

Three Possible Results of Fiscal Policy Budget deficit (G>T) Budget surplus (G<T) Balanced Budget (G=T)

Two types of Fiscal Policy : Expansionary – used to fight recessions (problem #1) Contractionary - used to fight inflation (problem #2)

Expansionary Fiscal Policy T ____ & G ____ = AD ____ Lower Taxes and Raise Government Spending = What happens to the Aggregate Demand?

Contractionary Fiscal Policy T ____ & G ____ = AD _____ Raise taxes and lower Government Spending = What will happen to Aggregate Demand?

Recession - GRAPH IT! AS During Recession, Expansionary Fiscal Policy will Increase AD! PL2 P/L1 AD2 A/D1 O/E1 O/E2 Output / Employment

You Graph It! During Inflation, Contractionary Fiscal Policy will decrease AD!