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Fiscal Policy

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  • 1. Fiscal Policy 1 1
  • 2. What is fiscal policy? changes in government spending or taxes to alter the economy 2 2
  • 3. What are examples of expansionary fiscal policy? • Increase government spending • Decrease taxes • increase government spending and taxes equally 3 3
  • 4. What are examples of contractionary fiscal policy? • Decrease government spending • Increase taxes • Decrease government spending and taxes equally 4 4
  • 5. budget surplus government revenues exceed government expenditures in a given time period 5 5
  • 6. budget deficit government expenditures exceed government revenues in a given time period 6 6
  • 7. What is the purpose of fiscal policies? To achieve long-run growth in output, full employment, and a lower price level 7 7
  • 8. demand-side fiscal policy A fiscal policy that emphasizes government policies that increase demand 8 8
  • 9. supply-side fiscal policy A fiscal policy that emphasizes government policies that increase supply 9 9
  • 10. Will an increase in taxes lead to higher government revenues? ????? 10 10
  • 11. Laffer Curve the idea that increasing taxes from zero will increase tax revenues up to a certain point 11 11
  • 12. What happens beyond a certain point? Tax revenues begin to decline 12 12
  • 13. Why does the shrink happen? Workers have less incentive to work and investors have less of an incentive to invest 13 13
  • 14. The Laffer Curve B Federal Tax Revenue Rmax C R D Federal Tax Rate A 0 Tmax T 100% 14 14