Chapter 15_Fiscal Policy

Chapter 15_Fiscal Policy - FI SCAL POLI CY 3 1 CH APTER...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: FI SCAL POLI CY 3 1 CH APTER Objectives After studying this chapter, you will able to Describe the federal budget process and the recent history of expenditures, taxes, deficits, and debt Examine the supply-side effects of fiscal policy on employment and potential GDP Explain the effects of deficits on saving, investment, and economic growth Explain how fiscal policy choices redistribute benefits and costs across generations Explain how fiscal policy can be used to stabilize the business cycle Balancing Acts on Capitol Hill In 2004, the federal government planned collect in taxes 17.3 cents of every dollar earned. The federal government planned to spend 20 cents out of each dollar earned. So the government planned a deficit of almost 3 cents per dollar earned. For most of the 1980s and 1990s, the government ran deficits, to the extent that the national debt is now about $13,000 per person. What are the effects of government deficits and debt? The Federal Budget The federal budget is the annual statement of the federal governments expenditures and tax revenues. Fiscal policy is the use of the federal budget to achieve macroeconomic objectives, such as full employment, sustained long-term economic growth, and price level stability. The Federal Budget The Institutions and Laws Fiscal policy is made by the president and Congress. Figure 31.1 illustrates the timeline. The Federal Budget Fiscal policy operates within the framework of the Employment Act of 1946 , which committed the government to work toward maximum employment, production, and purchasing power. The Presidents Council of Economic Advisers monitors the economy and advises the President on economic policy. The Federal Budget Highlights of the 2004 Budget The projected fiscal 2004 Federal Budget has tax revenues of $1,955 billion, expenditures of $2,256 billion, and a projected deficit of $301 billion. Tax revenues come from personal income taxes, social insurance taxes, corporate income taxes, and indirect taxes. Personal income taxes followed by social insurance taxes are the two largest revenue sources. The Federal Budget Expenditures are classified as transfer payments, purchases of goods and services, and debt interest. Transfer payments are by far the largest expenditure, and are sources of persistent growth in expenditures. The Federal Budget The federal governments budget balance equals tax revenue minus expenditure. If tax revenues exceed expenditures, the government has a budget surplus . If expenditures exceed tax revenues, the government has a budget deficit . If tax revenues equal expenditures, the government has a balanced budget . The Federal Budget The Budget in Historical Perspective Figure 31.2 on the next slide shows the governments tax revenues, expenditures, and budget surplus or deficit as a percentage of GDP for the period 1980 2004....
View Full Document

Page1 / 84

Chapter 15_Fiscal Policy - FI SCAL POLI CY 3 1 CH APTER...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online