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Week of APRIL 11, 2011 AGENDA
1. Today’s Do Now2. Hand-out Personal Finance WB3. Notes: Fiscal Policy4. CW: Fiscal Policy WS5. CW: Demand vs. Supply Side
Do Now (EOCT Review)
1. __________ are defined as all of the combination of goods and services that can be produced with a fixed amount of resources.
A. production possibilities B. factors of production C. opportunity costs
2. Which of the following is a factor of production?
A. Scarcity B. Full Employment C. Entrepreneurship
3. The central problem with which the discipline of economics is concerned with is
A. excess B. scarcity C. selfishness
4. The value of the next best alternative that is given up when one makes an economic decision is called the
A. opportunity cost B. trade-off C. minimal outcome
Georgia Performance StandardsSSEMA3 (Social Studies Economics Macro #3)
The student will explain how the government uses fiscal policy to promote price stability, full employment, and economic growth.
a. Define fiscal policy.
b. Explain the government’s taxing and spending decisions.
I. Macroeconomics: Fiscal Policy
Definition: Fiscal Policy
• Refers to those decisions by government related to
1. government spending
2. taxes
A: Expansionary Fiscal Policy
Stimulates growth
Govt Spending
Taxes = GROWTH
Increasing gov’t spending fights against recession and
unemployment
Ripple EffectWhen Gov’t spends $ for G/S, it increases overall(aggregate) demand in the economy
Increasing business activity and economic growth
GA OFFERS KIA 400M INCENTIVE
RIPPLE EFFECT
Pays land Owners 35.7 M-2200 Acres
Construction/ Buy New Homes
Consumer Goods
RIPPLE EFFECTGA OFFERS KIA 400M INCENTIVE
Contractors for building
Hire Workers
Suppliers Buy Goods
Buy Consumer Goods
Hire Workers-2000
Buy Consumer Goods
RIPPLE EFFECTGA OFFERS KIA 400M INCENTIVE
2500 Workers
Buy Consumer Goods
Suppliers- 2,000 workers
Hire Workers
Buy Consumer Goods
Buy Consumer Goods
B. Contractionary Fiscal Policy
Reduces Growth
Gov’t
SpendingTaxes = Slows
growth
Contractionary
1. fights against inflation
2. As demand continues to rise so do prices (D-up P- up)- & inflation threatens
3. Gov’t can then reduce spending and reverse the ripple effect
Contractionary
• INCREASING TAXES FIGHTS AGAINST INFLATION!!
Complete the Fiscal Policy Worksheet
CW 4/12/10 Demand vs. Supply Side:You have been assigned either demand-side orsupply-side economics. Answer #’s 1-3 from your assigned
viewpoint. Use pages 447-454 of your textbook to assist you. Some answers may be based on general knowledge.
1. Who is the main advocate (historical character) for this viewpoint?
2. What political party today most closely associates with this viewpoint?
3. The U.S. is headed for a recession. In regards to fiscal policy, what should the government do? (List at least 2 specific examples)
4. Was the New Deal based on demand-side or supply-side economics? How do you know?
5. Do you think that demand-side or supply-side economics is best? Why?
John Maynard Keynes1. Father of Macroeconomics
2. 1883- 1946
3. Advocated an aggressive role for the gov’t in a national economy- this is opposite of Adam Smith and laissez-faire
MACROECONOMIC THEORIES
Keynesian Economics
• Demand Side Economics– Major concern of macroecon is to ensure
aggregate demand is adequate to employ all productive resources (aggregate supply)
– To cure a recession / depression only the govt has the spending capacity to jolt aggregate demand
– The massive spending for WWII cured the Great Depression
Reganomics= Supply Side Economics (1980’s)
• 1. Aim was to stimulate business and industry
• 2. Major tactics – A. Cut individual tax rates– B. Cut taxes on unearned income (like
dividends)– C. Business tax incentives– D. Deregulation of Business – reduction of
federal agency rules governing business
MODEL OF THE BUSINESS CYCLE
Rec
over
y
Prosperity
Recession
Trough
Rec
over
y
Exp
ansi
on/G
row
th
Hir
ing,
GD
P in
crea
sing
Peak/BoomUnemploymentLowest, Real GDP stops growing Slow
-Dow
n
Lay-O
ffs
GD
P declines for
2 consecutive quarters
or 6 monthsDepression/Lowest PointUnemployment Highest, Real GDP stops decreasing, Acute shortages & excess in manufacturing