Popular in Macro Economics
Popular in Macro Economics
This 3 page Class Notes was uploaded by Maria Notetaker on Thursday September 15, 2016. The Class Notes belongs to ECON 101 at Montclair State University taught by Pirouz in Spring 2015. Since its upload, it has received 5 views. For similar materials see Macro Economics in Macro Economics at Montclair State University.
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Date Created: 09/15/16
Ch. 13 - Fiscal policy, deficits, debt Tuesday, April 14, 2015 10:02 AM Fiscal policy: Deliberate change in government spending and taxes designed to achieve full employment, control inflation, and encourage economic growth o At the discretion of the executive branch When recession: increase gov. expenditures, decrease taxes, combination deficit of both, create a When inflation: decrease gov. expenditures, increase taxes, combination of both, create a surplus Government expenditures Taxation Discretionary fiscal policy: the executive branch (counsel of economic advisors advise present on economic matters as well as treasury department) Executive branch Central bank of the country (completely independent) Types of taxes: Progressive tax system: lower income = lower tax Proportional tax system: everybody pays 7% Regressive tax system: pay less as a percentage of your income *skip p. 294298* Problems, Criticism, & Complications Problems of timing: o Recognition lag: the fact we don't have a crystal ball to see where economy stands today; we have to go back after time o Administrative lag: it takes some time for policies to be approved and ready to be implemented; o Operational lag: once a policy is implemented it will take even longer for the ripple effects to be felt critics: once a policy goes through these lags, the economy might have changed Crowdingout effect: when gov. comes into the market to borrow, interest rate goes up which results investment discourage: fiscal policy hurts more than helps Current thinking of fiscal policy: o It should not attempt to deal with short run business cycles; let federal reserve system deal with it o Fiscal policy should focus more on long term cycles (build roads, cut taxes so workers work harder for investment and innovation) The US Public Debt $16.4 trillion in 2012 (accumulation of years of federal deficits and surpluses): spend more than taxes Most of gov. debt is owed domestically Massive tax will get rid of debt Government cannot go bankrupt Problem of increasing income inequality: most people that hold debt have higher salaries and higher interest rates (benefits them) Social Security, Medicare Shortfalls If social security is short of funds o Raise ceiling upon which people pay taxes; brings a lot more tax in the fund o Raise tax from 6.2% to 6.5% o Raise the retirement age > from 65 to 69 (people are healthier now) Medicare (medicaid: poverty= free medical services/ medicare: retired= pay a small monthly fee but can have free medical visits, etc.) ; financed by small percentage of taxes (wages/salaries) o Problems: Aging of America Have to keep people alive; extending people's lives from what they used to be (very expensive) Workforce is become smaller Medical technology is improving which results in extended life spans Facilities are very expensive o Fixing When people that reach the stage where you have to keep them alive, they should switch to a private insurance that will better cover the costs
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