Fiscal Policy Influence
on the Economy
Government Taxing and Spending Policies
The health of a nation’s economy is
influenced by governmental policy (fiscal
policy)
 Fiscal policy can be used to spur economic
growth
 Economic policy decision made by
government result in both intended and
unintended consequences

Fiscal Policy Overview
Intended Results




What the
government MEANT
to happen
Spur economic
growth
Increase consumer
spending
Increase
employment
Unintended Results



What the
government DID
NOT MEAN to
happen
Unforeseen
problems
Backlash against
programs/spending
Effects of Fiscal Policy


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Personal Income
Tax – a
percentage of
gross income
Sales Tax – on
items purchased
Property Tax – a
percentage value
of your
land/house
Tariffs – placed on
imports
Government Taxing
Joking about
Taxes
What is the intended
purpose of this cartoon?
Permanent

Social Security –
retirement/disability
Short Term

◦ Overview of
Information


Medicare –
government funded
health care coverage
Entitlements – items
above, plus salaries
and benefits for
employees

Government Stimulus
Checks – one time
payments intended to
spur spending
CARS – aka – “Cash
for Clunkers” –
intended to promote
growth in struggling
auto industry
Government Programs
 Social
Security –
 Medicare
–
 Stimulus
Checks –
 CARS
-
Unintended Effects of Programs
Intended Purpose – to encourage consumer spending
on new vehicles
◦ Boost the struggling American automobile industry
 Production and Sales
 Unintended Results – 6/10 top 10 cars sold were
foreign models Top Ten Sales
◦ Still promotes American economy growth
◦ Many people who wanted to participate were
ineligible
◦ Unknown long-term effects – especially on
employment
◦ Increased government spending – incentive to
buyers (discount financed by the federal
government)

Policy Example - CARS
Intended Effects



Regulate commerce
with foreign countries
Protects American
jobs and farmers
Encourage American
industry and
production
Unintended Effects



Trading partners
retaliate: reduce
American exports by
½ (23 official protests)
Spike in
unemployment
World trade decreased
66% between 1929
and 1934
Tax Example – Hawley-Smoot Tariff 1930:
increased taxes on agricultural and industrial
imports to record high