Fiscal policy deals with changes in government spending and taxation to achieve economic goals like decreasing unemployment or inflation. There are two types: expansionary fiscal policy which increases spending or decreases taxes, and contractionary fiscal policy which decreases spending or increases taxes. Expansionary fiscal policy is used to decrease unemployment, while contractionary is used to decrease inflation. John Maynard Keynes first suggested governments could influence the economy through fiscal policy. Major taxes include income tax, corporate tax, sales tax, excise tax, and property tax. Government spending areas include defense, healthcare, education, infrastructure. Monetary policy changes the money supply through the central bank, the Federal Reserve. It can be expansionary by increasing the money supply or contraction

1. Unit 5: Fiscal and
Monetary Policy
The Government’s Role

2. Fiscal Policy

3. TAXES AND SPENDING!
●Fiscal policy deals with changes the government makes
in spending or taxation to achieve particular economic
goals.
●Expansionary fiscal policy is an increase in government spending
or a reduction in taxes.
●Contractionary fiscal policy is a decrease in government
spending or an increase in taxes.

4. WE USE
EXPANSIONARY
FISCAL POLICY TO
DECREASE THE
UNEMPLOYMENT RATE.

5. WE USE
CONTRACTIONARY
FISCAL POLICY TO
DECREASE INFLATION.

6. History of Fiscal
Policy
John Maynard Keynes
In 1936, an Englishman, John Maynard Keynes
published a book called The General Theory
of Employment, Interest, and Money
During the Depression,he suggested that
governments could use their spending and
taxation powers to influence the level of
spending in the economy.
Get the government to stimulate the
economy by hiring people to do desirable
public works jobs that do not compete with
private projects. Workers would spend their
income and businesses would react to that.

7. TAXES
Personal income tax is a tax people pay on their
income. Personal income tax is paid to both
the federal government and most state
governments.
Corporate income tax is a tax corporations pay
on their profits. Corporate income tax is also
paid to both the federal government and most
state governments.
Social Security tax is a tax paid to the federal
government on income generated from
employment. Half is paid by employers, and
the other half is paid by employees.
Sales tax is applied to the purchase of many goods,
such as cars, clothes, computers, etc. Sales tax is
collected by states, not by the federal government.
Sales taxes vary among states.
Excise taxes are placed on the purchase of certain
goods, such as tobacco and gasoline. The federal
government, as well as many states, collects excise
taxes.
“The federal excise tax on cigarettes is $1.01 per pack,
resulting in over $13 billion dollars in cigarette excise
tax revenue for the federal government in 2014.”
Property tax paid by homeowners on the value of
their property. This is a major revenue source for
state and local governments. Simply put, it is a tax
on the value of the property.

9. More on Income Tax
Three Types of Income Taxation
proportional income tax: everyone pays at the same
rate, whatever their income level. A flat tax is the
same as a proportional tax.
progressive income tax: people pay higher rates as
their incomes rise. Progressive income tax structures
are usually capped at some rate. The United States
has a progressive income tax structure. Today, the
tax rates were 10, 15, 25, 28, 33, and 35 percent.
regressive income tax is a tax rate that decreases as
income levels rise.
2015 Single Filers Tax Brackets

10. SPENDING (2011)

11. Crash Course- Fiscal Policy

12. Warm-up
1. What acts demonstrated expansionary fiscal policy?
1. Which expansionary fiscal policy strategies were performed?
1. Which acts demonstrated contractionary fiscal policy?
1. Which contractionary fiscal policy strategies were performed?
1. When do people spend more of their income?

13. Monetary Policy

14. MESSING WITH THE MONEY SUPPLY
Monetary policy is defined as changes the Fed makes in
the money supply.
expansionary monetary policy is an increase in the
money supply.
contractionary monetary policy is a decrease in the
money supply.

15. We use EXPANSIONARY
monetary policy to lower the
unemployment rate.

16. We use CONTRACTIONARY
monetary policy to reduce
inflation.

17. MONEY
What is money?
Must serve 3 Functions: medium of exchange, Unit of account, store of value
What is the money supply?
M1: Coins, Currency and Demand Deposits (Checking account deposits)
M2: M1 plus savings accounts and some mutual funds
How can we make more money without printing more money?

18. BANKING
Where’s my money?
Answer: All over the place
Wait!? They loan my money out?
Answer: Yes, but not all of it
Required Reserves: Bank deposits that the bank must keep (either in the vault or
in their account at the Fed) THe amount is based on the reserve requirement set
by the Fed.
Excess Reserves: Any reserves held beyond the required amount. This money
can be lent out in the form of personal, business, investment loans.

19. What is “The Fed” or the Federal Reserve
System?

20. Who’s Who in the Federal Reserve System
A Board of Governors, headquartered in Washington DC, manages the Fed.
7 people appointed by the President and confirmed by Senate
12 semi-autonomous Districts Banks
Each district bank has a Committee as well
The Federal Open Market Committee (FOMC)

21. Recent Chairs of the Board of Governors
Alan Greenspan
1987-2006
Ben Bernanke
2006-2014
Janet Yellen*
2014-
*First Woman Chair

22. The Tools of the Fed
FOMC’s Open
Market
Operations
Buying and Selling
Bonds
Buy bonds:
Increase the money
supply=expansionary
policy
The Discount
Rate:
The interest rate the
Fed charges member
banks
Lower the rate:
increase the money
supply=expansionar
y policy
Raise the rate:
The Reserve
Requirement:
The amount of bank
reserves each bank is
required to hold
Lower the
requirement:
increase the money
supply=expansionary
policy
Raise the reserve

24. Who’s to blame for the Great Recession?
Step 1: Identify the source of your article. (source A-J on top of the article)
Step 2: Get into groups with those who have the same source.
Step 3: Discuss article with group members. Who is your article blaming for the
Great Recession? (The Government, Consumers, or Financial Institutions)
Tip: Some articles are blaming more than one entity!
Step 4: Fill out the graphic organizer for your article with the causes, effects, and
a quote as evidence.
Tip: Write small! You’re going to be using this graphic organizer to fill out
information from other articles as well.