- Changes in the expenditures or tax revenues of the federal government
Tools of Fiscal Policy
- Taxes- Government can increase or decrease taxes
- Spending- Government can increase or decrease spending
Budgets
- Balanced budget- Revenues = Expenditures
- Budget deficit- Revenues < Expenditures
- Budget surplus- Revenues > Expenditures
- Government debt- Sum of all deficits - sum of all surpluses
- Government borrows from: individuals, corporations, financial institutions, and foreign governments whenever it is is in a deficit
Fiscal Policies
- Discretionary- requires government action
- Automatic- takes effect without action from the government
- Contractionary- response to inflation, decrease government spending and increase taxes
- Expansionary- response to recession, increase in government spending and decrease in taxes
Automatic Stabilizers
- policies and programs that are designed to offset shifts in the economy that do not require government action
- Examples: welfare checks and social security
Tax Systems
- Progressive Tax System- average tax rate (Tax Revenue/ GDP) rises with GDP
- Proportional Tax System- average tax rate remains constant as even as GDP changes
- Regressive Tax System- average tax rate falls with GDP
Do you think that every government should have enough automatic stabilizers so discretionary policy is never needed?
ReplyDeleteIt is worth noting that all automatic stabilizers fall under government teansfer payments.
ReplyDeleteDiscussing the 3 types of tax systems, they do appear to be similar but one is one that rises with GDP, one which drops with GDP and one which also stays the same.
ReplyDeleteVary intuitive and worth the time to read. the systems are vary specific.
ReplyDelete