Fiscal Policy

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Fiscal Policy

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

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