Disclaimer The views expressed are those of the presenters and do not necessarily reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System TEKS 15 Economics The student understands the economic impact of fiscal policy decisions at the local state and national level ID: 1027291
Download Presentation The PPT/PDF document "Session 11 Fiscal Policy" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
1. Session 11Fiscal PolicyDisclaimer: The views expressed are those of the presenters and do not necessarily reflect those of the Federal Reserve Bank of Dallas or the Federal Reserve System.
2. TEKS(15) Economics. The student understands the economic impact of fiscal policy decisions at the local, state, and national levels. The student is expected to: (A) identify types of taxes at the local, state, and national levels and the economic importance of each; (B) analyze the categories of revenues and expenditures in the U.S. federal budget; and (C) analyze the impact of fiscal policy decisions on the economy.(6) Economics. The student understands the basic characteristics and benefits of a free enterprise system. The student is expected to: (D) analyze the costs and benefits of U.S. economic policies related to the economic goals of economic growth, stability, full employment, freedom, security, equity (equal opportunity versus equal outcome), and efficiency.
3. Teaching the Terms
4. Fiscal PolicyGovernment spends money to provide goods and services Government pays for those expenditures through taxation and borrowing
5. ExternalitiesBenefits or costs from a transaction extend beyond the buyer or sellerPositive externalitiesEducationTechnology spillovers or patent protectionNegative externalitiesPollution
6. Rival in Consumption?YesNoExcludable?YesPrivate GoodsNatural MonopoliesNoCommon ResourcesPublic GoodsPotential Market Failures
7. CatagorizeCable TVClothingCongested non-toll roadsCongested toll roadsEnvironmentFire protectionFish in the oceanIce creamNational defenseTornado sirenUncongested non-toll roadsUncongested toll roads
8. Rival in Consumption?YesNoExcludable?YesPrivate GoodsClothingCongested non-toll roadsIce creamNatural MonopoliesFire protectionCable TVUncongested toll roadsNoCommon ResourcesFish in the oceanEnvironmentCongested toll roadsPublic GoodsTornado sirenNational defenseUncongested non-toll roads
9. Potential for Market FailurePublic goods are subject to a free-rider problemLighthouse, basic researchCommon resources can lead to the tragedy of the commonsClean air and water, congested citiesRole of property rights
10. Federal Government: ReceiptsIndividual income taxesSocial insurance taxesCorporate income taxesOther
11. Federal Government: SpendingSocial SecurityNational defenseIncome securityMedicareHealthNet interestOther
12. Federal Government RevenueSource: Final Monthly Treasury Statement for FY2009
13. Federal Government FundingSource: Final Monthly Treasury Statement for FY2009
14. Federal Government ExpendituresNote: “Other” includes many agencies, such as Transportation, Housing and Urban Development, Education, Homeland Security, Justice, Energy, State, NASA, International Assistance Programs, Interior, Commerce, EPA and Corps of EngineersSource: Final Monthly Treasury Statement for FY2009
15. State Government Revenuehttp://www.census.gov/prod/2009pubs/10statab/stlocgov.pdf
16. Texas RevenueInsurance trust includes unemployment, retirement and workers comp funds
17. State Government Expenditureshttp://www.census.gov/prod/2009pubs/10statab/stlocgov.pdf
18. Texas Expenditures
19. Local Governments Revenuehttp://www.census.gov/prod/2009pubs/10statab/stlocgov.pdf
20. Local Government Expenditureshttp://www.census.gov/prod/2009pubs/10statab/stlocgov.pdf
21. Structure of Taxes
22. Structure of Taxes
23. Budget Lingo
24. Deficits and DebtGovernment must borrow money when it runs a budget deficitGovernment borrows fromIndividualsCorporationsFinancial institutionsForeign entities or foreign governments
25. Fiscal Policy and Economic GoalsNational economic goals include GrowthStabilityFull employmentFreedomSecurityEquity EfficiencyUsing government spending and taxation programs to achieve goals
26. What is the Goal?
27. Business CycleReal GDPTimeLong Run Growth TrendRecessionExpansion
28. Price LevelReal GDPYFFull Employment Level of OutputAggregate SupplyPL1Aggregate Demand
29. Expansionary Fiscal PolicyResponse to a recession (economy is operating below full employment)Seeks to stimulate production (and consumption)Directly (expenditures ↑)Indirectly (taxes ↓ to encourage household spending or investment spending)
30. Fiscal Responses to 2008 Recession
31. Contractionary fiscal policyResponse to inflation (economy is operating above full employment and prices are rising)Seeks to reduce production (and consumption) Directly (expenditures ↓)Indirectly (taxes ↑ to discourage household or investment spending)Politically difficult
32. Measuring Fiscal Policy’s EffectsEffects are not limited to the initial dollar value of the change in policyThe eventual effects may be larger or smaller, depending on:Multiplier effectCrowding-out effect
33. Multiplier EffectSpending and tax policies create a chain reaction in the economy as people spend new incomeMany factors complicate the multiplierTaxesInternational tradeDiffering consumption patterns among various segments of the population
34. Crowding OutInvestment or consumption spending that is lost because government borrowing drives up interest ratesGovernment is entering the same market for funds as investors
35. Two Types of Fiscal PolicyDiscretionary fiscal policyPolicymakers change tax policies or spending programs in response to fluctuations in the business cycle (at their discretion)Automatic stabilizersImplemented without any deliberate action from policymakersFound in the tax system and spending programs
36. Automatic Stabilizers – Tax SystemTaxes are linked to economic activityProgressive income tax rates (individual and corporate)Payroll taxesSales and excise taxesRecessions → automatic “tax cut”Expansion → automatic “tax increase”
37. Automatic Stabilizers – SpendingGovernment spending responds to the business cycleUnemployment insurance benefitsWelfare benefitsSchool lunch programsOther income-support programsRecessions → more spendingExpansion → less spending
38. Challenges Related to Fiscal PolicyPolitical factors Time lagsTime required to create and pass legislationTime required to implement legislationSupply side impactsForecasting difficultiesMonetary policies may reinforce or offset fiscal policies
39. Questions?