2 Tools of Fiscal Policy:
- Taxes: government can increase or decrease taxes
- Spending: government can increase or decrease spending
-Government must borrow money when it runs a budget deficit
-Government borrows from:
- Individuals
- Corporations
- Financial Institutions
- Foreign Entities or Foreign Governments
- Discretionary Fiscal Policy (action)
- Expansionary Fiscal Policy- deficit
- Contractionary Fiscal Policy- surplus
- Non-Discretionary Fiscal Policy (no action)
-inflation is countered with contractionary policy
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| Expansionary (left) and Contractionary (right) Policy graphs. |
-strategy used to control inflation
Expansionary Fiscal Policy
-recession is countered with expansionary policy
-policy designed to increase aggregate demand
-Strategy used to increase GDP, combat a recession, and reduce unemployment
-Increase government spending
-Decrease taxes
Automatic or Built-In Stabilizers
-Anything that increases the government's budget deficit during a recession and increases its budget surplus during inflation without requiring explicit action by policymakers
Progressive Tax System: average tax rate (tax revenue/GDP) rises with GDP
Proportional Tax System: average tax rate remains constant as GDP changes
Regressive Tax System: average tax rate falls with GDP
Deficit, Surplus and Debt
-Balanced Budget: revenue = expenditure
-Budget Deficit: revenue < expenditure
-Budget Surplus: revenue > expenditure
-Government Debt: Sum of all deficits - Sum of all surpluses
-recession is countered with expansionary policy
-policy designed to increase aggregate demand
-Strategy used to increase GDP, combat a recession, and reduce unemployment
-Increase government spending
-Decrease taxes
Automatic or Built-In Stabilizers
-Anything that increases the government's budget deficit during a recession and increases its budget surplus during inflation without requiring explicit action by policymakers
Progressive Tax System: average tax rate (tax revenue/GDP) rises with GDP
Proportional Tax System: average tax rate remains constant as GDP changes
Regressive Tax System: average tax rate falls with GDP
Deficit, Surplus and Debt
-Balanced Budget: revenue = expenditure
-Budget Deficit: revenue < expenditure
-Budget Surplus: revenue > expenditure
-Government Debt: Sum of all deficits - Sum of all surpluses
I like how your note is short but contains everything that I need to know but I want to add in something to make it more details
ReplyDeleteDeficit, surplus ad debt:
-Balance budget: revenue = expenditure
-Budget deficit: revenue < expenditure
-Budget surplus: revenue > expenditure
-Government Debt: Sum of all deficits - Sum of all surpluses.
I hope this help.
Okay, thank you! I've added it.
DeleteWhy is the LRAS on the 2nd graph on AD2 and not on AD1?
ReplyDeleteBecause contractionary policy decreases aggregate demand
DeleteOoh! I like the format of your notes, very short and concise. It would be nice if you could a add a bit of emphasis on the effects of each fiscal policy. You should bold your notes saying Expansionary increases government spending and decreases taxes (Gov spending↑, taxes↓) and add that Contractionary decreases government spending, and increase taxes (Gov spending↓, taxes↑). This way, the understanding for their effects on the economy will be much clearer~
ReplyDeleteBtw: I like your Storm Trooper cursor :)
Good graphs, awesome notes they are clear and right to the point, I can use this as a great study guide for today's test thanks antonette
ReplyDeleteYour notes look very nice and organized, the graphs about expansionary and contractionary fiscal policies give a nice visual representation and understanding.
ReplyDeleteYour notes are very short and straight to the point. This makes it easier to understand. The graphs that you added about the fiscal policies really helped contribute to my understanding of this subject.
ReplyDelete