Fiscal Policy EQ: What’s all the commotion about government spending?

Review Ch 9  Get in groups of two :  Group member 1 – using the text, develop 4 questions from ch 9 using the following terms: Personal Income Tax, Regressive, Excise, and Payroll  Group member 2 - using the text, develop 4 questions from ch 9 using the following terms: Progressive, proportional, FICA, and sales tax  Once you have your questions developed (and written down), trade questions and each answer

Where does the government spend our money? Where do you think?

Definition  Fiscal - Government’s attempt to regulate the economy by taxation and government spending

Two Types of Fiscal spending Automatic/mandatory  Policy that is already in legislation to take affect without additional work by Congress Discretionary  Policy that requires a new act of Congress to establish.

Discretionary

EOCT Review 1. Draw a Productions Possibilities Curve showing the trade-off between guns and butter. What do “guns” and “butter” represent? 2. Name 4 factors that affect demand. 3. Name 4 factors that affect supply. 4. Draw a perfectly elastic demand curve. 5. Draw a perfectly inelastic demand curve. 6. What happens at equilibrium for supply and demand? 7. At what point is profit maximizing level of output reached? 8. Minimum wage is an example of a price ___________. What happens with a price floor? 9. Describe the differences between perfect competition and monopoly. 10. What is the equation for total revenue?

Fiscal Policy Expansionary Policy  Increases AD  Increases GDP  Stimulates the economy  Gets us out of a recession Contractionary Policy  Decreases AD  Decreases GDP  Slows down the Economy  Prevents inflation

Review  What are two types of fiscal spending? Explain  What type of policy decisions are used when the economy is contracting or in recession?  What type of policy decisions are used when the economy is expanding or experiencing high inflation?

Fiscal Policy Tools Expansionary  Cut in Taxes  Personal/Corporate Income  Increase in Government spending  Deregulation of Business  Increase of social programs Contractionary  Increase in taxes  Decrease in Government Spending  Increase in Business Regulations  Cut in social programs  Progressive Income Tax Structure

Critical Thinking  Why might the government want to engage in expansionary fiscal policy?  Contractionary?

Obama’s Jobs Plan

Interpret the cartoon… 1 CDs; 2 CMs

Recap Video  PqyJRo8 PqyJRo8

What is the objective for AD?  1. The government cuts personal income-tax rates.  2. The government eliminates favorable tax treatment on long-term capital gains.  3. Incomes rise; as a result, people pay a larger fraction of their income in taxes.  4. As a result of a recession, more families qualify for food stamps and welfare benefits.

What is the objective for AD?  5. The government eliminates the deductibility of interest expense for tax purposes.  6. The government launches a major new space program to explore Mars.  7. The government raises Social Security taxes.  8. Corporate profits increase; as a result, government collects more corporate income taxes.  9. The government raises corporate income tax rates.