Government ActionsGovernment Actions

Created by the President House & Senate analyze & recommend

changes Finally passed by both houses

Individual Income taxes Corporate income taxes Excise taxes - “Sin” taxes

Progressive tax – tax burden falls more heavily on wealthy then the poor. › Ex. Income taxes

Regressive tax – tax burden (as a %) falls more on the poor then the wealthy › Ex. Sales tax

Sales tax Property tax Individual Income tax Excise tax “sin tax” Lottery Bonds Inheritance & Estate Taxes User Fees

Carried out by legislative & executive branches Includes tax policy & government spending Economic Effect:

› Alter growth rate of GDP Expansionary Policy

› Speed up GDP growth › Tax cut or increase in spending will stimulate

growth and lower unemployment Restrictive Policy

› Raising taxes and/or cutting government spending to slow growth and lower inflation

Carried out by the Federal Reserve Federal Reserve is part of the

bureaucracy Create policy to counteract actual or

anticipated undesirable changes in the economy

Controlling the money supply › Increasing or decreasing $ available to

banks› Buying or selling government bonds

Controlling the Fed Fund Rate › Interest rate that they loan money to

banks› If they lower the rate then banks should

lower the interest rates for us.

Money Supply › Increase the money supply› More money = more borrowing = more

spending = increased GDP, increased employment etc.

Federal Fund Rate › Decrease fed fund rate› Low interest rates = more borrowing = etc.

Money Supply › Decrease the money supply› Less $ = less borrowing = less business

opportunities = less spending = decreases GDP, inflation,

Federal Fund Rate› Increase the interest rate› Same chain of events