Standard 12.3: Students analyze the influence of the federal government on the

American economy12.3.3:

Describe the aims of government fiscal policies (taxation, borrowing, spending) and their influence on production, employment and price

levels.

FISCAL POLICY

SWBAT:

Determine and graph how to solve the

problem of a recession using

Expansionary Fiscal Policy verses solving the problem of high

inflation using Contractionary Fiscal

Policy

FISCAL POLICY

• Today you are going to converse with various partners

• Each time you see the prompt

‘Talk to a partner ‘ find a different person to talk to – you may not talk to the same person twice!

1.) What are the 3 macro goals of the U.S. economy?

2.) What problems may result from too much inflation?

3.) What problems may result from a recession?

Warm UpTalk to a partner:

Two Major Problems That Can Occur in Our Economy

[extremes of the business cycle):

• Recession/Depression:- Low GDP/high unemployment

• Inflation:- Prices increasing too quickly

HOW DO YOU FIX THEM???

FISCAL POLICY

Definition

• Fiscal Policy can be defined as what the government does with taxes or government spending to stabilize the economy during periods of recession or inflation.

• What the U.S. government does to try and stabilize the economy

Talk to a partner:

What are the 2 tools of fiscal policy?

1)Increasing/Decreasing Taxes

2) Government Spending

Three Possible Results of Fiscal Policy:

1. Budget Deficit: government spending greater than tax revenue

2. Budget Surplus: government spending is less than tax revenue

3. Balanced Budget: government spending=tax revenue

Create a Tree Map with each of the 3 terms, their definition and

an illustration that we just went over!

How Fiscal Policy Started…

• Before the Great Depression, the U.S. adopted a policy of laissez-faire (no government intervention)

• But with the economy in such an economic crisis during the 1930s, citizens cried out for the gov’t to take action and play a more active role in the economy

Talk to a partner:

Why do you think citizens wanted the government

to become more “ACTIVE”?

John Maynard Keynes• He was FDR’s economic guru during

the Great Depression.• He advised the president that the

only way to bring the economy out of a recession was for the government to play a more active role in the economy (spend money).

• Therefore, Keynes is noted for being the founder of fiscal policy.

• Fiscal Policy greatly increased the role of the government in the United States.

Talk to a partner:

In what way is Keynes’ advice to FDR different

from the policy of laissez-faire?

Problem: Recession/Depression• SOLUTION:

– The government pursues an expansionary fiscal policy:

• Increasing government spending • Decreasing taxes

• The intention is to increase GDP and lower unemployment

=Expansionary Fiscal Policy

Talk to a partner:

How does increasing government spending and lowering taxes help fight the problem of a

recession???

Problem: Inflation (prices rising)• SOLUTION:

– The government pursues a contractionary fiscal policy

• Decreasing government spending• Increasing taxes

• The intention is to lower/slow down rising prices

= Contractionary Fiscal Policy

Talk to a partner:

How does decreasing government spending and

increasing taxes help to fight the problem of inflation???

Wrap-Up1. What are the 2 extremes of the

business cycle?2. What type of fiscal policy should be

pursued to fight a recession and what two things occur and why?

3. What type of fiscal policy should be pursued to fight inflation and what two things occur and why?

4. Who’s the founder of Fiscal Policy?5. What does laissez-faire mean?