Fiscal policy

Fiscal Policy-
The change in expenditures or tax revenue of the federal government 

can either increase or decrease taxes or spending

Types of Budget
Balanced Budget= Rev. = Expenditures
Deficit= Rev. < Expenditures
-when in deficit, gov't borrows from

1. individuals
2. corporations
3.  financial Institutions
4.  foreign Entities and Countries

Surplus= Rev > Expenditures
Goverment= Sum of deficits - sum of surplus
Discretionary)

• -Expansionary when in deficit
• -combats recession
• -increases gov't spending; decreases taxes
• -Contractionary when in surplus
• -combats inflation
• -decreases gov't spending; increases taxes
• -increase/decrease gov't spending or taxes to get back to FE (fiscal policy responds to economic problems that [may] occur)

Non-Discretionary (wait)
Automatic or built-in stabilizers - include unemployment compensation and marginal taxes; they happen without the use/interference of policy makers

Tax Systems
Progressive- Avg. tax rate rises with GDP (Tax revenue/GDP)
Proportional- Avg. tax rate remains constant as GDP changes
Regressive-Avg. tax rate falls with GDP
More Progressive = More Stablility