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HOW DOES THE GOVERNMENT STABILIZES THE ECONOMY?
Fiscal Policy - actions by congress to stabilize the country changes in the expenditures or tax revenue of the federal government

2 tools of Fiscal Policy
Taxes government can increase or decrease taxes spending - government can increase or decrease spending

Fiscal Policy is enacted to promote over nation economic goods full employment price stability, economic growth

Deficits, Surpluses, and Debt
Balanced Budget => Revenues = Expenditures
Budget Deficits => Revenues < Expenditures
Budget Surplus R>E
Gov't Debt =>Sum of all D - Sum of all S

Government must borrow money what it runs a budget deficit government borrows from  
- individuals 
-corporations
- financial 

Fiscal Policy 

1. Discretionary Fiscal Policy (action)
• Expansionary fiscal policy - used during a deficit
• Contractionary fiscal policy - used during a surplus
2. Non Discretionary Fiscal Policy (no action)

3 Types of Taxes

1. Progressive Taxes
• Takes a larger % of income from high income groups
2. Proportional Taxes
• Takes the same % of income from all groups
3. Regressive Taxes 
• Takes a larger % from the low income groups

Contractionary Fiscal Policy (The Brake)

• Laws that reduce inflation and GDP
• Decrease government spening
• Tax increases
• Combinations of the two

Expansionary Fiscal Policy (The Gas)

• Laws that reduce unemployment and increase GDP
• Increase government spending  
• Decrease taxes on consumers 

Automatic or Built in stabilizers

• Anything that increases the governments budget deficit during a recession and increases its budget surplus during inflation without requiring explicit action by policy makers