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pisssskaaaaaaaal palisiiiii

  1. 1. • One major function of the government is to stabilize the economy (prevent unemployment or inflation) • Stabilization can be achieved in part by manipulating the public budget-government spending and tax collections-to increase output and employment or to reduce inflation.
  2. 2. • Congress reviews budget, enacts several. • The President vetoes measures.
  3. 3. 1. Balanced Budget 2. Surplus Budget 3. Deficit Budget
  4. 4. •What tools does the government have to regulate the economy? •Who implements fiscal policy?
  5. 5. • TAXES –Tax rates • Income, corporate, excise, FICA –Tax incentives • GOV’T SPENDING –Public goods, defense, social programs
  6. 6. 1. Expansionary fiscal policy: used to combat a recession. 2. Contractionary fiscal policy: used to combat demand-pull inflation, due to excess spending. “What can government do?”
  7. 7. Expansionary Fiscal Policy To Reduce Unemployment… a. Decrease taxes b. Increase government spending c. Combo of the two
  8. 8. Contractionary Fiscal Policy To Reduce Inflation… a. Increase Taxes b. Decrease Government Spending c. Combo of the two
  9. 9. • Economist with a very different view from Adam Smith. • Keynes said that the government SHOULD get involved in the economy (to a limited extent.)
  10. 10. TAX INCENTIVES (CREDITS) Given to businesses and individuals to get them to do something the government wants them to do. (buy fuel-efficient cars, hire people coming off of welfare.) –During a slowdown of the economy • INCREASE tax incentives –During an inflationary period • DECREASE tax incentives.
  11. 11. GOVERNMENT SPENDING Buying all the things that government provides, from highways, to military, to education. – During a slowdown of the economy • INCREASE spending. – During an inflationary period • DECREASE spending.
  12. 12. • Shocks Originating from Abroad • Net Export Effect

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