Friday, March 4, 2016

Fiscal Policy

Fiscal Policy

  • The change in Expenditures or Tax Revenue of the Federal Government
    • Can either increase or decrease Taxes or Spending
Type of Budget
  • Balanced Budget=Revenue = Expenditures
  • Deficit= Revenue < Expenditures
    • When in Deficit, Government borrows from:
      • Individuals
      • Corporations
      • Financial Institutions 
      • Foreign Entities and Countries
    • Surplus= Revenue > Expenditures
    • Government Debt= Sum of Deficits- Sum of Surplus
    • Discretionary (Action)- 
      • Expansionary 
        • Combats Recession
        • Increase Spending; Decrease Taxes
      • Contractionary
        • Combats Inflation
        • Decrease Spending; Increase Taxes
      • Increase/ Decrease Government Spending or Taxes to get back Fiscal Policy 
    • Non Discretionary 
      • Automatic/ Built-in Stabilizers- Include Unemployment Compensation and Marginal Taxes; They happen without Policy Makers
Tax Systems
  • Progressive- Average Tax Rates rises with GDP 
  • Proportional- Average Tax Rates remains constant as GDP Changes
  • Regressive- Average Tax Rates falls with GDP
  • More Progressive- More Stability 

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