GRAPHING FISCAL
POLICY
Warm Up:
 What
is causing the nation to be in a
recession?
 What could cause the nation to experience
a period of inflation?
To Fight Recession…
 Need
to pursue ________ fiscal policy!!!
 This mean, taxes ____ and government
spending ____
 So,
is the government running a budget
surplus or a budget deficit??? Explain.
Expansionary Fiscal Policy
 Running
a budget deficit…
 Spending more money than they are
collecting in taxes
 Therefore, needs to get the extra money
by taking out more loans!!!
PL
Illustrating the Solution:
Recessionary Gap Graph
ASLR
AS
Too
_______
spending is
causing Y ____
Y*
I
AD
Y
Y*
O/E
Fixing the Problem:
________________ FISCAL POLICY!!!


T___ DI___ C & I __ AE__ AD___ PL & O/E___
G___ AE__ AD___ PL & O/E___

Transfer Payments
DI__
C & I__
AE__
AD___
PL/OE
Fixing the Problem:
ELIMINATE THE RECESSIONARY GAP
USING EXPANSIONARY FISCAL POLCIY!



C___
I____
G___
AD____
PL & O/E___
Fixing the Problem:
Eliminate the Recessionary Gap Using
Expansionary Fiscal Policy
PL
AS
PL2
PL1
AD
O/E1
O/E2
AD2
O/E
To Fight Inflation…
 Needs
to pursue _________ fiscal policy
 This mean, taxes____ and government
spending ______
 The
government will be running a budget
______.
Contractionary Fiscal Policy
 Since
they are collecting more tax revenue
while government spending is decreasing,
they will have left over money.
PL
Illustrating the Problem:
Inflationary Gap Graph
ASLR
AS
Too ______
spending is
causing
Y ____ Y*
I
AD
Y*
Y
O/E
How to Fix the Problem:
________________ FISCAL POLICY!!!


T___ DI___ C & I __ AE__ AD___ Pl & O/E___
G___ AE__ AD___ PL & O/E___

Transfer Payments
DI__
C & I__
AE__
AD___
PL/OE
Fixing the Problem:
ELIMINATE THE INFLATIONARY GAP
USING CONTRACTIONARY FISCAL POLCIY!



C___
I____
G___
AD____
PL & O/E___
Fixing the Problem:
PL
Eliminate the Inflationary Gap Using
Contractionary Fiscal Policy
AS
PL1
PL2
AD2
O/E2
O/E1
AD
O/E
POLICY INSTRUMENTS
Systems set in place by the
government to help achieve
macro goals
POLICY INSTRUMENTS
1.) Fiscal Policy - govt using tax or spending to stabilize
the economy
2.) Monetary Policy - our national bank, the FEDERAL
RESERVE, controls the Money Supply to stabilize the
economy
3.) Foreign Economic Policies - trade policies that
attempt to keep imports in line with exports
4.) Income Policies - govt actions to moderate inflation
by direct steps (ex: legislated wage and price controls)
External Variables
Things we have no control over…but they
still affect the overall outcome of our
economy
1.
2.
3.
Weather
Foreign output
Revolutions or Wars
Video
 “Unintended
Depression”
 Take Notes!
Consequences -- The Great
Wrap-Up
1)
2)
3)
4)
5)
What are some of the similarities
between the problems leading up to the
Great Depression and today?
What could have been done to avoid the
Great Depression from being “Great?”
What is the multiplier effect?
What is “The Fed” (Federal Reserve) and
what is it responsible for?
How does cash get it’s value?
Wrap Up: Fill In The Correct
Answer
1.
2.
3.
4.
5.
To correct an inflationary problem in the U.S.,
the AD curve needs to shift to the __________.
Using an expansionary fiscal policy results in
taxes _________.
Supporters of fiscal policy believe that
inflation can be reduced by __________
________________.
Keynes believed that spending money was the
key to controlling the economy during a
_____________.
Full employment implies that unemployment
is ________________.