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Fiscal Policy Tools

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Jen Castillo Bautista
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22 views17 pages

Fiscal Policy Tools

Uploaded by

Jen Castillo Bautista
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Fiscal Policy

How the Government affects my


money!
Fiscal Policy
• Def. Government decisions on spending
and taxation that are intended to improve
or maintain the economy.

• Because the government is so large and


has such an impact on business, the
decisions it makes has a HUGE influence
on the economy.
Who makes Fiscal Policy?
• Congress and the President make fiscal
policy through the federal budget.

• The Bangko Sentral ng Pilipinas (another


government agency) DOES NOT make
fiscal policy.
What is the National Budget?
• The national budget is a written document
that indicates the amount of money the
government expects to receive for a
certain year and authorizes the amount of
money the government can spend that
year.
• Every Fiscal Year (a 12 month period, not
necessarily from Jan. to Dec.) the
government makes a new budget. It may
add to it through supplementary budgets
from time to time.
Fiscal Policy and the Economy
• The total level of government spending
can be changed to help increase or
decrease the output of the economy

• Expansionary Policies: Policies that try to


increase the output of the economy
• Contractionary Policies: Policies that try to
decrease the output of the economy
Expansionary Policies
• During a contraction or recession, the
government can do two things:

1. Decrease Taxes
Or
2. Increase Spending
Decreasing Taxes
1. Gives people more money to spend
2. More money = more demand
3. More demand = more production
4. More production = more jobs
5. More jobs = more demand etc. etc.
Increase Spending
1. Increases demand for goods
2. More demand = more production
3. More production = more jobs
4. More jobs = more demand etc. etc.
Who favors which policy
• Decreasing Taxes • Increase Spending

• Favored by • Favored by
Republicans Democrats

Let people decide what Government should


to spend their money spend to redistribute
on and let those who wealth to the poor,
earned the money rather than give the
benefit from it. rich a tax cut
Contractionary Policies
• During a period of excessive inflation
(during a period of expansion), the
government can do two things:

1. Increase Taxes
Or
2. Decrease Spending
Increase Taxes
1. People have less money to spend
2. Less money = less demand
3. Less demand = lower inflation
Decrease Spending
1. Less money in economy
2. Less money = less demand
3. Less demand = lower inflation
Who favors which policy?
Trick Question! Neither party favors
Contractionary Fiscal Policies!!!

This is one of the problems with Fiscal


Policy
Problem with Fiscal Policy
1. It is unpopular to raise taxes or cut
government spending. So, elected
officials worried about re-election rarely
do either.

Ex. In 1984, Walter Mondale ran for


president saying a slight tax increase
would help equalize the U.S. economy.
Ronald Regan defeated him in one of the
biggest landslides in U.S. history!
Problems with Fiscal Policy
2. If the government cuts taxes, they have
less money to spend or they go into debt.
The federal debt is in the trillions of dollars,
so the government has to borrow money
by selling bonds. These bonds have to
be paid back with interest, costing the
government more money!

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