Ch14-8e_macroyas

Ch14-8e_macroyas - CHAPTER 14 Fiscal Policy After studying...

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Fiscal Policy CHAPTER 14
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After studying this chapter you will be able to Describe the federal budget process and the recent history of outlays, tax revenues, deficits, and debts Explain the The Supply-Side: Employment and Potential GDP on employment and potential GDP Explain the effects of deficits on investment, saving, 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
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Balancing Acts on Capitol Hill 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? Federal government deficits are not new. Apart from four years 1998 - 2001, the federal government has had a budget deficit. How do government deficits and the debt they bring affect the economy?
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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: 1. To finance the activities of the federal government 2. To achieve macroeconomic objectives Fiscal policy is the use of the federal budget to achieve macroeconomic objectives, such as full employment, sustained economic growth, and price level stability.
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The Federal Budget The Institutions and Laws The President and Congress make fiscal policy. Figure 14.1 shows the timeline for the 2007 budget.
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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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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.
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The Federal Budget Highlights of the 2007 Budget The projected fiscal 2007 Federal Budget has revenues of $2,521 billion, outlays of $2,891 billion, and a projected deficit of $370 billion. 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 debt interest. Transfer payments are the largest item of outlays.
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The Federal Budget Surplus or Deficit The federal government’s budget balance equals tax revenue minus outlays. If revenues exceed outlays, the government has a
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Ch14-8e_macroyas - CHAPTER 14 Fiscal Policy After studying...

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