Fiscal Policy

February 29, 2016

Fiscal policy

• Expansionary and contractionary policy deficits and surpluses built-in-stabality

What it does:

• changes in the expenditures or tax revenues of the federal government

-2 tools of fiscal policy

1. Taxes- government can increase or decrease taxes
2. spending- government can increase or decrease spending

Deficits, surpluses, and dept

• Balanced budget

-revenues = expenditures

• Budget deficit

-revenues < expenditures

• Budget surplus

-revenues > expenditures

• Government debt

-sum of all deficits- sum of all surpluses

• government must borrow money when it runs a budget deficit
• government borrows from

-individuals

-corporations

-financial institutions

-foreign entities or foreign

Fiscal policies two options

• Discretionary fiscal policy (action)
• Expansionary fiscal policy: think deficit
• Contractionary fiscal policy: think surplus
• Non- Discretionary fiscal policy ( no action)