Encouraging Growth Cause: increased government spending raises output and creates jobs Cause: Tax cuts allow individuals to have more money to spend and businesses get to keep more of their profits. Cause: The government buys more goods and services. Cause: Higher prices encourage Suppliers of goods and services to produce more and hire more workers. Cause: Government spending increases aggregate demand, which causes prices to rise.

Fiscal Policy Options Classical Economics -Free markets can regulate themselves -This type of economic policy looks at the equilibrium of supply and demand for individual products; it doesn’t take into account market equilibrium. Keynesian Economics -Developed by J.M. Keynes -Demand-side economics encourages government action to increase or Decrease demand and output -Focuses on the economy as a whole -Economy divided into three sectors: individuals businesses, and Government Supply-Side Economics -Believes tax cuts can help an economy by raising supply -Uses the Laffer curve to illustrate that high tax rates may cause econo- mic activity to decrease. -Argues that tax cuts increase total employment so much that they government actually collects more in taxes at the new, lower rate.

Debt and Deficit Debt -The sum of all the government borrowing up to that time, minus the borrowings that have been repaid -The total of all deficits and surpluses Deficit -The amount of money the government borrows for one budget, representing one fiscal year -Can rise or fall because of forces beyond the government’s control -Borrowing money affects both debt and deficit -Budget deficits add to debt -Debt and deficit contribute to unbalanced budgets

Encouraging Growth Cause:. Cause:

Fiscal Policy Options Economics -Free markets can -This type of economic policy looks at the equilibrium of ________ and for ; it doesn’t take into account market. Economics -Developed by J.M. - -side encourages action to or demand and output - on the as a -Economy divided into three sectors: Economics -Believes tax cuts can help an economy by -Uses the Laffer curve to illustrate that high tax rates may cause. -Argues that tax cuts increase so much that the actually collects in at the new, lower rate.

Debt and Deficit Debt -The of all the government up to that time, minus the that - Deficit -The amount of the government for one, representing -Can because of forces the government’s -Borrowing money - -Debt and deficit