Chapter 28
Federal Budgets: The Tools of
Fiscal Policy
Copyright © 2021 by W. W. Norton & Company, Inc.
Pre-class music: “The Credit Song” by The Arrogant Worms. (See Tip #534.)
This is one of the most descriptive songs about economics—it covers a number of
different economic topics, but one line that stands out is “If you cannot make your
loan, well, do like the government and take out a bigger loan.” The lyrics of this song
can be a good starting place when helping students begin to put real-world budget
struggles in the proper context.
,Previously
During the Great Recession:
•Lower output.
•High unemployment.
However, the Great Depression in the 1930s was much
worse and lasted much longer.
Classical economists:
•Market is self-correcting.
Keynesian economists:
•Market corrections take time due to sticky wages.
•Focus on policy aimed at AD.
,Big Questions
1. How does the government spend?
2. How does the government tax?
3. What are budget deficits?
, Federal Budgets: The Tools of Fiscal Policy
Outlays Revenues
• Mandatory • Social Insurance
• Discretionary tax (Medicare,
Medicaid, Social
Security)
• Income tax
Lecture notes:
This class will first talk about government budgets and its two parts: outlays and
revenues. Then, it will talk about deficits and debt.
[Songquan Deng/Alamy Stock Photo]
Federal Budgets: The Tools of
Fiscal Policy
Copyright © 2021 by W. W. Norton & Company, Inc.
Pre-class music: “The Credit Song” by The Arrogant Worms. (See Tip #534.)
This is one of the most descriptive songs about economics—it covers a number of
different economic topics, but one line that stands out is “If you cannot make your
loan, well, do like the government and take out a bigger loan.” The lyrics of this song
can be a good starting place when helping students begin to put real-world budget
struggles in the proper context.
,Previously
During the Great Recession:
•Lower output.
•High unemployment.
However, the Great Depression in the 1930s was much
worse and lasted much longer.
Classical economists:
•Market is self-correcting.
Keynesian economists:
•Market corrections take time due to sticky wages.
•Focus on policy aimed at AD.
,Big Questions
1. How does the government spend?
2. How does the government tax?
3. What are budget deficits?
, Federal Budgets: The Tools of Fiscal Policy
Outlays Revenues
• Mandatory • Social Insurance
• Discretionary tax (Medicare,
Medicaid, Social
Security)
• Income tax
Lecture notes:
This class will first talk about government budgets and its two parts: outlays and
revenues. Then, it will talk about deficits and debt.
[Songquan Deng/Alamy Stock Photo]
