Government Taxing and Spending Fiscal Policy Government Taxing and Spending

What is Fiscal Policy? Government’s taxing and spending decisions to change the economy Fix inflation Fix recessions and high unemployment

Money we pay the government Can increase or decrease Taxes

Government purchases of resources or goods and services Purchase from households and businesses Can increase or decrease. Government Spending

Two types of Fiscal Policy Expansionary: Putting money IN the economy Used during a contraction to fix unemployment Contractionary: Taking money OUT of the economy Used during expansions to fix inflation Two types of Fiscal Policy

Type of Fiscal Policy Used Stage of the business cycle currently in Change to Money Supply Problem in the economy Type of Fiscal Policy Used GDP UNEMPLOYMENT PRICES Stage of the business cycle currently in Increase Taxes Decrease Inflation Contractionary Expansion Decrease Taxes Increase Unemployment Expansionary Contraction

Type of Fiscal Policy Used Stage of the business cycle currently in Change to Money Supply Problem in the economy Type of Fiscal Policy Used GDP UNEMPLOYMENT PRICES Stage of the business cycle currently in Increase Government Spending Increase Unemployment Expansionary Contraction Decrease Government Spending Decrease Inflation Contractionary Expansion

Government tax revenue is GREATER than government spending (expenditures) Can help reduce government debt Use excess money to pay off some debt Budget Surplus

Government tax revenue is LESS than government spending (expenditures) Can help increase government debt Government has to borrow money to pay expenses Budget Deficit

CONTRACTIONARY POLICY Problem: Inflation Solution: Increase Taxes  If taxes increase, we get to keep less of our money.   When we have less money, we spend less  This is called MONEY TAXES CONTRACTIONARY POLICY

Problem: Recession and high unemployment Solution: Decrease Taxes  If taxes decrease, we get to keep more of our money.   When we have more money, we spend more! This is called

Problem: Recession and high unemployment Solution: Increase spending If government spending increases, they are buying more goods or resources from us, so we get more money.    When we have more money, we spend more! This is called

CONTRACTIONARY POLICY Problem: Inflation Solution: Decrease spending  If government spending decreases, they are buying fewer goods or resources from us, so we get less money   When we have less money, we spend less  This is called CONTRACTIONARY POLICY