1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the...
-
Upload
owen-dorsey -
Category
Documents
-
view
213 -
download
0
Transcript of 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the...
![Page 1: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/1.jpg)
1
Chapter 7 Fiscal Policy
These slides supplement the textbook, but should not replace reading the textbook
![Page 2: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/2.jpg)
2
Who were theClassical Economists?A group of the 18th and 19th centuries, including Adam Smith known as the father of modern day economics
![Page 3: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/3.jpg)
3
What did Adam Smith and the Classical
Economists believe?The economy was always tending toward a full employment equilibrium and stable prices
![Page 4: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/4.jpg)
4
What doeslaissez-faire mean?
Leave well enough alone, let the economy correct problems itself
![Page 5: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/5.jpg)
5
What happened in the Depression of 1921?
Even though it was serious the government practiced laissez-faire and the economy recovered in a short period of time
![Page 6: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/6.jpg)
6
What were policies of President Herbert Hoover
in the early 1930s to combat the depression?
public works projects raised taxes loans to failing firms relief programs
![Page 7: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/7.jpg)
7
What were policies of President Franklin
Roosevelt in 1933 to combat the depression? public works projects and
social welfare programs raised taxes and wages loans to failing firms relief programs
![Page 8: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/8.jpg)
8
According to Robert Reich, an American political
economist and professor, what was the result of these
government programs?
These programs helped save American capitalism
![Page 9: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/9.jpg)
9
According to Thomas Woods author of Meltdown, what
was the result of these government programs?
These programs prevented the economy from seeking its equilibrium of full employment and prolonged the depression
![Page 10: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/10.jpg)
10
What is a fiscal policy?
The manipulation of government purchases, transfer payments, taxes, and borrowing in order to positively influence the economy
![Page 11: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/11.jpg)
11
How did Keynes influence fiscal policies?He argued that fiscal policies may be necessary to bring about full employment
![Page 12: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/12.jpg)
12
How did World War II affect fiscal policies?It showed that a government stimulus package can work
![Page 13: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/13.jpg)
13
What is theEmployment Act of 1946?Its main purpose was to lay the responsibility of economic stability of inflation and unemployment onto the federal government
![Page 14: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/14.jpg)
14
What are the four phases of the
business cycle?• trough• recovery• peak• recession
![Page 15: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/15.jpg)
15
What are the 3 pillars of
Keynesian Economics?
• Liquidity trap• Balanced budget multiplier• Paradox of thrift
![Page 16: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/16.jpg)
16
What is a liquidity trap?
A lack of borrowing keeps money bottled up in savings institutions
![Page 17: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/17.jpg)
17
What is the Keynesian solution to
a liquidity trap?Government borrows the money that consumers and business do not borrow
![Page 18: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/18.jpg)
18
What is the Balanced Budget
Multiplier?When the government taxes and spends the money there is a multiple effect because of no savings
![Page 19: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/19.jpg)
19
What is the Paradox of Thrift?
The more people save, the less will be demand, which leads to slow growth
![Page 20: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/20.jpg)
20
What does crowding out mean?
During periods of full employment the government can borrow money that otherwise would be spent or invested
![Page 21: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/21.jpg)
21
How does the government borrow
money?It sells bonds (securities) to the Fed or in the Open Market
![Page 22: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/22.jpg)
22
What is the current national debt?
Just over $17.5 trillionhttp://www.usdebtclock.org/
![Page 23: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/23.jpg)
23
What does monetizing the debt mean?
The federal government sells bonds (securities) to the Fed and the Fed creates the money to buy the bonds
![Page 24: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/24.jpg)
24
What can monetizing the debt lead to?
A fall in the value of the dollar and inflation
![Page 25: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/25.jpg)
25
What is a discretionary fiscal
policy?Government policies that require ongoing decisions by policy makers
![Page 26: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/26.jpg)
26
What are some examples of fiscal policies?
Government purchasesTransfer paymentsTaxes
![Page 27: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/27.jpg)
27
What are automatic stabilizers?
Structural features of government spending and taxation smooth out fluctuations in booms and busts
![Page 28: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/28.jpg)
28
What are some examples of
automatic stabilizers?Unemployment paymentsWelfareOther govt. programs
![Page 29: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/29.jpg)
29
What is the point of Keynesian Economics?The economy could be stuck at equilibrium below the potential output for a prolonged period of time
![Page 30: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/30.jpg)
30
What is an expansionary fiscal policy?
An increase in government purchases, decrease in net taxes, or some combination of the two aimed at increasing aggregate demand
![Page 31: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/31.jpg)
31
When would the government use
expansionary fiscal policies?
To stimulate the economy when unemployment is greater than the natural rate
![Page 32: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/32.jpg)
32
What is a contractionary fiscal policy?
A decrease in government purchases, increase in net taxes, or some combination of the two aimed at reducing aggregate demand
![Page 33: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/33.jpg)
33
When would the government use
contractionary fiscal policies?
To slow down the economy when inflation is more than desired
![Page 34: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/34.jpg)
34
What is the typical Keynesian policy
during recessions?To use discretionary fiscal policies to stimulate the economy to a full employment equilibrium
![Page 35: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/35.jpg)
35
What is the multiplier?
Any change in the level of spending has a multiple effect on GDP
![Page 36: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/36.jpg)
36
What is the accelerator?Any increase in spending can lead to an increase in secondary spending, for example, a new highway may lead to more restaurants, hotels, and gas stations
![Page 37: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/37.jpg)
37
When does the accelerator have most impact on spending?
During periods of full employment
![Page 38: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/38.jpg)
38
How did World War II affect fiscal policies?It showed that a government stimulus package can work
![Page 39: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/39.jpg)
39
What is MPC?The marginal propensity to consume (MPC) is a measure of how much consumers will spend out of any addition to their income
![Page 40: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/40.jpg)
40
What is MPS?The marginal propensity to save (MPS) is a measure of how much consumers will save out of any addition to their income
![Page 41: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/41.jpg)
41
If MPC is ¾, what is MPS?
MPS would be ¼ because MPC + MPS = 1
![Page 42: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/42.jpg)
42
What is the value of the multiplier?
1 / MPS
![Page 43: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/43.jpg)
43
If MPC is ¾, what is the value of the
multiplier?1 / ¼ = 4
![Page 44: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/44.jpg)
44
$100.00$75.00$56.25$42.19$31.64
...
$400.00
original spent
total money
![Page 45: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/45.jpg)
45
What effect does an increase in demand have
on prices and output?The more steeply sloped the supply curve the greater impact on prices and the less impact on employment
![Page 46: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/46.jpg)
46
Slightly sloped Supply Curve
Real GDP
PriceLevel SRAS
AD
AD*
![Page 47: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/47.jpg)
47
Steeply sloped Supply Curve
Real GDP
PriceLevel SRAS
AD
AD*
![Page 48: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/48.jpg)
48
How effective are fiscal policies?
Automatic stabilizers are more effective than are discretionary fiscal policies
![Page 49: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/49.jpg)
49
Should we rely on automatic stabilizers?
The stronger and more effective the automatic stabilizers are, the less need there is for discretionary fiscal policies
![Page 50: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/50.jpg)
50
How effective were fiscal policies during the
stagflation of the 1970’s?
Whatever we did to fight one problem we made the other problem worse
![Page 51: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/51.jpg)
51
What are lag effects?Recognition lagDecision lagAction lag
![Page 52: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/52.jpg)
52
Do lag effects influence discretionary
fiscal policies?Yes, they weaken fiscal policies as a tool of economic stabilization
![Page 53: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/53.jpg)
53
What is one’spermanent income?
Income that individuals expect to receive on average over the long term
![Page 54: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/54.jpg)
54
Do consumers base their decisions on their
permanent income or their short term income?
Perceived long term income
![Page 55: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/55.jpg)
55
What is one thing policy makers often overlook?
How fiscal policies unintentionally affect individual incentive to work, save and invest
![Page 56: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/56.jpg)
56
What is theLaffer Curve?
A curve that shows that starting from zero an increase in taxes will raise revenue but beyond a point an increase will lower revenues
![Page 57: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/57.jpg)
57
What is the Laffer Curve?
![Page 58: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/58.jpg)
58
What issupply side economics?The belief that real GDP can be increased by giving people incentives to work
![Page 59: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/59.jpg)
59
What was fiscal policy in the Reagan Administration
of the 1980’s?Taxes were decreased to stimulate the economy by increasing aggregate supply
![Page 60: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/60.jpg)
60
What effect does politics have on fiscal policies?There is always the danger that politicians can use discretionary fiscal policies to suit their short term political goals
![Page 61: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/61.jpg)
61
Does the federal deficit affect fiscal policies?If we were to increase spending by borrowing, the national debt could become unmanageable
![Page 62: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/62.jpg)
62
Watch video on the National Debt
http://video.search.yahoo.com/video/play?p=national+debt&n=21&ei=utf-8&js=1&fr2=tab-web&tnr=20&vid=000165545891
![Page 63: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/63.jpg)
63
What is the difference between a stock and a flow way of thinking? An example of a stock situation would be an increase in government spending has no opportunity costs
![Page 64: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/64.jpg)
64
If we spend a dollar do we pay for that
dollar here and now? Yes, either by higher taxes, higher interest rates if we borrow the money, or more inflation if we create the money
![Page 65: 1 Chapter 7 Fiscal Policy These slides supplement the textbook, but should not replace reading the textbook.](https://reader030.fdocuments.in/reader030/viewer/2022032522/56649d6d5503460f94a4e1cc/html5/thumbnails/65.jpg)
65
END