Lecture 17 - Economics 102 Lecture 17: Fiscal Policy Fiscal...

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1 Economics 102 Lecture 17 : Fiscal Policy LECTURE 17 FISCAL POLICY 1 Fiscal Policy § In 2007, the federal government planned to spend 21.1 cents out of each dollar earned in the United States and collected 18.2 cents per dollar in taxes. How does the government’s planned deficit affect the economy? LECTURE 17 FISCAL POLICY 2 In this chapter, look for the answers to these questions: § What is fiscal policy and how does it operate? § In what two ways does fiscal policy affect aggregate demand? § How might fiscal policy affect aggregate supply? § What are the arguments for and against using policy to try to stabilize the economy?
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2 LECTURE 17 FISCAL POLICY 3 The Federal Budget § The federal budget is the annual statement of the federal government’s outlays and tax revenues. § The federal budget has two purposes: § Fiscal policy is the use of the federal budget to achieve macroeconomic objectives, such as LECTURE 17 FISCAL POLICY 4 The Federal Budget § The Institutions and Laws The President and Congress make fiscal policy. The figure shows the timeline for the 2007 budget. LECTURE 17 FISCAL POLICY 5 The Federal Budget Employment Act of 1946 Fiscal policy operates within the framework of the Employment Act of 1946 in which Congress declared that . . . it is the continuing policy and responsibility of the Federal Government to use all practicable means . . . to coordinate and utilize all its plans, functions, and resources . . . to promote maximum employment, production, and purchasing power.
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3 LECTURE 17 FISCAL POLICY 6 The Federal Budget The Council of Economic Advisers The Council of Economic Advisers monitors the economy and keeps the President and the public well informed about the current state of the economy and the best available forecasts of where it is heading. This economic intelligence activity is one source of data that informs the budget-making process. LECTURE 17 FISCAL POLICY 7 The Federal Budget Highlights of the 2007 Budget § The initial projected fiscal 2007 Federal Budget: revenues of outlays of a projected deficit of (actual deficit turned out to be $ billion) LECTURE 17 FISCAL POLICY 8 The Federal Budget Highlights of the 2007 Budget § Revenues come from personal income taxes, social security taxes, corporate income taxes, and indirect taxes. Personal income taxes are the largest revenue source. § Outlays are transfer payments, expenditure on goods and services, and interest on the debt. Transfer payments are the largest item of outlays.
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4 LECTURE 17 FISCAL POLICY 9 The Federal Budget Surplus or Deficit § The federal government’s budget balance equals tax revenue minus outlays.
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This note was uploaded on 04/02/2008 for the course ECON 102 taught by Professor Rossana during the Fall '08 term at University of Michigan.

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Lecture 17 - Economics 102 Lecture 17: Fiscal Policy Fiscal...

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