4.4 Fiscal Policy Spring 2024

Fiscal Policy

President & Congress
using taxingand
spending to promote
economic growth and
stability.

Take a minute to view the Ficsal Policy video in Google Classroom and answer the questions.

Open Ended

How is FISCAL policy different from MONETARY policy? (You may need to refer to your 4.3 notes)

Power and Limitations for Taxes

• Power to Tax – Article 1, Section 8,

Clause 1 of the U.S. Constitution
and the 16th Amendment

• Limitations:

– Purpose is for “the common defense

and general welfare”

– Federal taxes must be the same in

every state

– Government may not tax exports

Open Ended

Where do you find the power to tax in the Constitution?

Open Ended

What is the purpose of taxes?

Multiple Choice

Income tax was allowed by the ______________ Amendment.

• 12th

• 17th

• 16th

• 13th

Types of Taxes

Progressive- as income goes up tax rate increases
Regressive- takes larger percent of income from
the lower income group
Proportional- takes the same percent of income
from all income levels
Excise Tax- tax paid on a good or service to be used
for your benefit (ex gas tax used to maintain roads)
Estate Tax- tax on inheritance above around $11
million in gross assets
Custom Duties- tax on imports

Top Federal Taxes

●

Individual Income Tax - Includes
earned income (wages, salaries,
commission) and unearned income
(dividends, interest, rents).

●

Social Security – one part of FICA – a
taxpaid by employees and
employers
○

FICA=SocialSecurity + Medicare

●

Corporate Income Tax– a tax levied
on a corporation's profits

Government Spending/Expenditures

● Goods and Services
● Transfer Payments - a payment

for which the government
receives neither goods nor
services.
○ Examples: Unemployment,

social security, welfare and
veterans benefits

Not counted

in GDP!

Counted
in GDP!

Multiple Choice

Government transfer payments are included in GDP.

• TRUE

• FALSE

Federal Budget

●Federal budget - an annual plan outlining
proposed revenues and expenditures for the
coming year.

●Approximately 2/3 of the federal budget consists of
mandatory spending - spending authorized by
law that continues without the need for annual
approvals of Congress.
○(Social Security, Income Security, Healthcare
services (Medicaid), Interest in the national debt)

●The remaining one-third of the budget deals with
discretionary spending– programs that must
receive annual authorization.

●

●

●

Open Ended

What is the difference between mandatory spending and discretionary spending?

2 Types of Fiscal Policy

Contractionary: during an
expansion and involves
decreased spending and/or
increased taxes, to combat
inflation.

Multiple Choice

Contractionary fiscal policy is meant to fight _______________

• Inflation

• Unemployment

2 Types of Fiscal Policy

Expansionary: during a recession
and involves increasing government
spending, and/or decreasing taxes,
to battle unemployment.
● This is deficit spending: annual

spending in excess of taxes and
other revenues. Its why are debt is
so large.

Multiple Choice

Expansionary fiscal policy is meant to fight _______________

• Inflation

• Unemployment

Open Ended

Why is the government debt so large?

Go back to Google Classroom to view Econmovies: CARS to complete your notes.