Slide 1 of 49
Notes:
The fiscal policy of the U.S. government is a topic that is often discussed among individuals. Topics such as the annual federal deficit and the national debt are two topics that draw a lot of attention from the news media. What is a deficit? What is the national debt? Taxes and government spending are two other topics that individuals often discuss and are addressed regularly by the news media. What is all this fiscal policy stuff?
Well the modern fiscal policy of the federal government actually has its roots in a book published by John Maynard Keynes, “The General Theory of Employment, Interest, and Money”, in 1936. Keynes was a British economist who believed that capitalist economic systems could get stuck in a depression like the one the U.S., and much of the world was experiencing during the 1930’s. Keynes advocated that governments should use their powers to tax and spend to assist the economy out of a depression, and to moderate the ups and downs of business cycles. Many have referred to the spending by government during a recession or a depression as “priming the pump” of the economy.
What is a recession? A recession is a downturn in economic activity, broadly defined as at least two consecutive quarters of decline in a nation's gross domestic product (GDP). A depression is a severe downturn in the economy that is marked by falling prices, reduced purchasing power, and high unemployment. During the Great Depression of the 1930’s, unemployment reached nearly 25 percent.
