Fiscal Policy

Fiscal policy is defined as

• a monetary policy that involves the discount rate and open market operations to speed up or slow down the economy

• changes in federal government spending or tax rates that influence the business cycle of the economy

• policy used by the FED or FRS only

• a monetary policy that uses the buying & selling of bonds to influence the economy

The government uses changes in expenditures and/or taxes associated with Fiscal Policy to achieve the economic goals of

• a balanced budget, low taxes, high tarrifs

• price stability, economic decline, inflation

• economic growth, high unemployment, deflation

• full employment, stable prices, economic growth

Increased government spending associated with Fiscal Policy eventually becomes income for businesses and consumers and is designed to encourage growth of ___________.

• supply

• demand

• the money supply

• inflation

Fiscal Policy consists of

• Tight Money Policy & Easy Money Policy

• Monetary & Credit Policies

• Contractionary Policy & Exansionary Policy

• Interest Rates & Exchange Rates

Tools of Fiscal Policy include

• Federal taxes & government spending

• Monetary Policy & Trade Agreements

• Interest Rates & Reserve Requirements

• Government Regulations & Borrowing

__________________ is used to stimulate growth in an economy that is in the contraction/recession/depression phase of the business cycle and consists of increased government spending or decreased tax rates.

• Contractionary

• Monetary Policy

• Fiscal Policy

• Expansionary Policy

Using ___________________ slows growth in an economy that is expanding too fast and experiencing inflationary pressures; tools used are decreased spending or increased tax rates.

• Expansionary Policy

• Contractionary Policy

• Tight Money Policy

• Easy Money Policy

As a representative in Congress, you are concerned about how inflation is eroding your constituates' purchasing power.  It may not be popular with your fellow representatives, but your recommendation is to _____________ or ____________ to slow the growth in the economy.

• decrease government spending or increase taxes

• Increase government spending or decrease taxes

• raise the discount rate or lower wages

• decrease taxes and tariffs on imports

Why doesn't the Federal government increase both taxes & government spending to stimulate growth when the economy is sluggish during the contraction/recession/depression phase of the business cycle?

• This would just confuse the public, something the government would prefer to avoid

• politicians don't want to pay more in taxes, just like their supporters don't want to pay more in taxes

• politicians don't want to lose their seat in Congress

• increasing government spending would encourage growth & increasing taxes reduces consumer spending which slows growth; used this way, they cancel each other out

Fiscal Policy is controlled by...

• The Government

• The Federal Reserve System

• The states

• The Department of Commerce