Fiscal Policy
Fiscal Policy:
-actions by congress to stabilize economy
- changes in expenditures or tax revenue of the federal government
- enacted to promote nation’s economic goals: full employment, price stability, and economic growth
-actions by congress to stabilize economy
- changes in expenditures or tax revenue of the federal government
- enacted to promote nation’s economic goals: full employment, price stability, and economic growth
2 tools of Fiscal Policy:
-Taxes – government can increase or decrease taxes
-Spending – government can increase/ decrease spending
Deficits, Surpluses, Debt
- Balanced budget (revenues = expenditures)
- Budget Deficit (revenues < expenditures)
- Budget Surplus (revenues > expenditures)
- Government Debt (sum of all deficits – sum of all surpluses)
- Budget Surplus (revenues > expenditures)
- Government Debt (sum of all deficits – sum of all surpluses)
- Government can borrow money when it runs a budget deficit
-ex) individual taxes, corporations, financial institutions, foreign governments
-ex) individual taxes, corporations, financial institutions, foreign governments
Discretionary fiscal policy:
- Congress’s action
- Congress’s action
Contractionary fiscal policy:
- Think surplus
Non- discretionary fiscal policy:
- No action
- No action
Three types of Taxes:
1) Progressive taxes
-takes a large % of income from high income groups
-takes more from rich
-ex) current federal income tax system
2) Proportional taxes
-takes the same percent of income from all income groups
-ex) 20% flat income tax on all income groups
3) Regressive Taxes
-takes a large percent from low income groups
-takes from poor
-ex) sales tax
1) Progressive taxes
-takes a large % of income from high income groups
-takes more from rich
-ex) current federal income tax system
2) Proportional taxes
-takes the same percent of income from all income groups
-ex) 20% flat income tax on all income groups
3) Regressive Taxes
-takes a large percent from low income groups
-takes from poor
-ex) sales tax
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