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The 2008 Bailout and Fiscal Policy
Remember
• Business Cycles – We were in recession
07 --08 --09--10
Why do we need a bailout?
• Businesses were failing due to stock market crash– Mostly bulky large
businesses which were wrapped up in the stock market with options, derivatives, futures, etc.
• Entire industries and countries were collapsing– GDP declining
Too big to fail?
• The government determined that some companies were too big to fail– General Motors– Ford Motors– Chrysler– Bank of America– Merrill Lynch– AIG
• What makes a company too big to fail?
Fiscal Policy
• Fiscal policy is the government expenditure and revenue collection to influence the economy– Expansionary• Government spends more than it has to boost the
economy– Put money in people’s pockets
– Contractionary• Government increases taxes to slow down the economy
– Take money out of people’s pockets
Fiscal Policy
• Contractionary Expansionary
Aggregate Supply/Demand
• The United States • Aggregate refers to the entire economy instead of one sector– Instead of supply and
demand for pumpkins, this is overall supply and demand
GDP
How expansionary fiscal policy affects Agg D and S
• By pursuing expansionary fiscal policy, the government can boost demand
• Giving people money is increasing their income– Remember that income
is a determinant of demand
GDP
AD’
How expansionary fiscal policy affects Agg D and S
• Expansionary fiscal policy has 2 effects:–1. Increases
output/GDP–2. Increases prices• This is called
inflationGDP
AD’
Mr. Garcia
RULES!!!!!
This Week
Monday – Tuesday – BailoutWed – Fiscal PolicyThurs. – Book WorkFriday – ArticlesMonday – Review of Cycles and Fiscal Policy/QuizTuesday – Monetary Policy ActivityWednesday – Monetary Policy