Fiscal Policy
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Fiscal Policy

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Fiscal Policy Presentation Transcript

  • 1. The Government and Fiscal Policy
  • 2. Government in the Economy
    • Nothing arouses as much controversy as the role of government in the economy.
    • Government can affect the macroeconomy through two policy channels: fiscal policy and monetary policy.
      • Fiscal policy is the manipulation of government spending and taxation.
      • Monetary policy refers to the behavior of the Federal Reserve regarding the nation’s money supply.
  • 3. The Budget Deficit
    • A government’s budget deficit is the difference between what it spends ( G ) and what it collects in taxes ( T ) in a given period:
    • If G exceeds T , the government must borrow from the public to finance the deficit. It does so by selling Treasury bonds and bills. In this case, a part of household saving ( S ) goes to the government.