tailieunhanh - Lecture Economics: The basics (2/e): Chapter 11 - Michael Mandel

Chapter 11 - Fiscal policy. After reading the material in this chapter, you should be able to: Identify key differences between the private sector and government, describe the short-term impacts of increased government spending and use the multiplier effect to calculate the effect of fiscal stimulus, summarize the limitations of using increased government spending to stimulate growth, discuss the ways that changes in tax rates affect the economy,. | Chapter 11 Fiscal Policy McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Identify key differences between the private sector and government. Describe the short-term impacts of increased government spending and use the multiplier effect to calculate the effect of fiscal stimulus. Summarize the limitations of using increased government spending to stimulate growth. Discuss the ways that changes in tax rates affect the economy. Explain how the budget deficit affects the economy in the short run and in the long run. 11- Fiscal Policy Fiscal policy is defined as the economic effect of government spending and taxes. Fiscal policy looks at the impact on the economy in both the short-term and long-term. In the short-term, fiscal policy consists of the government’s budget decisions. In the long-term, fiscal policy creates the link between government spending and taxation decisions and the country’s economic growth. 11- The Government and the Economy Government spending and tax policy have a major impact on the economy. Government spends directly on wages, goods and services. It also shifts money from some people to others in the form of Social Security, Medicare, and other programs. 11- The Government and the Economy In the private sector, spending occurs through market transactions. In this case, all transactions are voluntary. The level of government spending is set by the political system rather than the economic system. Spending is funded through a combination of taxation and borrowing. Unlike the private sector, the government pays back debts by raising taxes. 11- Short-Term Impact of Government Spending Each year the federal budget is set through a process that begins in February. Through the process, the President and Congress come to an agreement on the level of spending and the tax rules. In the short term, an increase in government spending lowers unemployment and increases GDP, all . | Chapter 11 Fiscal Policy McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Identify key differences between the private sector and government. Describe the short-term impacts of increased government spending and use the multiplier effect to calculate the effect of fiscal stimulus. Summarize the limitations of using increased government spending to stimulate growth. Discuss the ways that changes in tax rates affect the economy. Explain how the budget deficit affects the economy in the short run and in the long run. 11- Fiscal Policy Fiscal policy is defined as the economic effect of government spending and taxes. Fiscal policy looks at the impact on the economy in both the short-term and long-term. In the short-term, fiscal policy consists of the government’s budget decisions. In the long-term, fiscal policy creates the link between government spending and taxation decisions and the country’s economic growth. 11- The

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