Fiscal Policy and Stimulus: Crash Course Economics #8 

*Main outtakes of this lesson* 1) _Recessionary gap_ - a situation wherein the real GDP is lower than potential GDP at the full employment level. 2) _Inflationary gap_ - the amount by which the actual gross domestic product (GDP) exceeds potential full-employment GDP. 3) _Macroeconomics_ - the study of the entire economy as a whole rather than individual markets. 4) _Fiscal policy_ - the way a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. a. _Expansionary Fiscal Policy_ - stimulates the economy during or anticipation of a business-cycle contraction. b. _Contractionary Fiscal Policy_ - enacted by a government to reduce the money supply and ultimately the spending in a country. c. Classical theories assumed that the economy will fix itself in a long run, and that government intervention will, at best, lead to unintended consequences and, at worst, cause massive inflation and debt. 5) _Deficit spending_ - the government spends more money than it collects in tax revenue. a. _Crowding out_ - where increased public sector spending replaces, or drives down, private sector spending. b. Keynesian economists maintain that _crowding out_ is only a problem if economy operates at full capacity, where all workers are employed and we're producing as much as we can. 6) _Austerity_ - raising taxes and cutting government spending to reduce debt. In crisis of 2008 was main policy of EU, which led to worse results than deficit spending policy in US. 7) _Multiplier effect_ - the initial increase in government spending of 100$ might turn out to be 175$ worth of actual spending in the economy. a. When the economy is booming, multiplier is close to 1x. b. When economy is in recession, the multiplier is around 2x. c. Spending on infrastructure, and aid to state & local governments , also seems to have fairly high multiplier, about 1.5. But general cuts to payroll and income taxes seems to have a multiplier of about 1:. If the government cuts 100$ in taxes, the economy is going to grow by about 100$.

Sitting in quarantine trying to learn more about the economy... interesting how this video aged

At the beginning I was looking for the skip ad button...

Let the economics melee begin!

Hey Crash Course, can we get a "why are we learning this" series? I'm a middle school science teacher and my kids always ask this question. Many times I am able to relate material to life but sometimes it's a struggle and I know it is for other teachers in science and other subjects as well. It would be fantastic to introduce a subject with a short video explaining different layers of importance of certain subjects as well as specific topics within them.

I'm surprised you didn't make more use of that really expensive looking under ground lair set.

I've learned more watching 11:53 minutes of this than the whole semester at my University.

Thank you! Spent over 30 hours reading through material for my pre-course and this channel explained it in a much easier way in under two hours.

i am watching your videos for over an hour now, which is literally saving me from failing my macroeconomics test tomorrow morning. you explain that stuff way better than some profs in university as your videos are perfect to understand mathemetically complicated theories! Greets from germany and lots of thanks for all the work :-)

This helped me grasp this concept SO much easier. I was lost and thought I'd fail my essay. I am extremely grateful for this video and the rest of the economics series. Keep up the great work.

GIVE US CRASH COURSE PHYSICS, DAMMIT! ..nice video, by the way.

I would love to see sources on Crash Course videos. Just a "we used these papers for sourcing" type deal. Allow some of us to dig deeper if we want.

"Maybe it's about that thing you didn't have in sixth grade: *confidence* ." Gurl, please. It's been years since then, and I STILL don't have that!

As you said, Keynes also said that in inflation times - when the economy is running well - the government should increase taxes and decrease government spending. The problem is that many countries do not do that, so their debt rises and rises. That's one of the main problem many countries nowadays have in my opinion.

Love u Adriene , your teaching ! Thank you all for making such videos which are very helpful in understanding economics .

I normally would've found the idea of an Economics crash course being co-hosted a little ridiculous, but these two are just so dorky and engaging and adorable. Love the work!

@CrashCourse, I would really appreciate if you guys had a recap/ summary of the main points we've learned at the end of all your videos like how Hank Green does on his SciShow videos. Thanks for putting this together!

Loving this series so far, you guys are doing a great job, I was skeptical at first but keep it up guys!

I get more out of these CrashCourse presentations that just about any other resource I'm provided with. I've written entire papers with the material from a 10-minute video. NICE JOB!!

This is so helpful during crisis to understanding what's happening out there.

"Maybe it's all about that thing you didn't have when you are in 6th grade: confidence." I still don't have it by now.

Now I can make informed decisions while making my opinions on government policy AND better manage my economy while playing Galactic Civilizations 2 and the like.

This is such an awesome series. Keep up the great work, guys!

The comparison to the US and EU policy did not take into account the massively different interest rates those countries where paying for debt that the effect that expansionary spending would have on the interest rates of new debt. Greece is the most extreme, with the interest of 10 year loans getting to over 40%. Meaning if had an expansionary spending where government debt spending was 10% of it's GDP, after 3 years interest on ONLY the new loans would be 12% of GDP. No one believes that Greece would ever get the growth that would allow them to pay that debt, so the debt rate only goes higher. US debt interest on the other hand was only ~2%, so the cost of expansionary spending was very low for the US. You can't cover everything, but that was a big key when comparing US and EU spending. Also, the main reason the US did not see much growth in spite of spend $800B, is that when government debt went from 70% of GDP to 100% of GDP, private sector debt when to ~260% of GDP to 200% GDP, causing a net loss of 30% of total debt over as a percent of GDP over ~6 years.

It's easy to say that economic policy by the fed helps regulate the business cycle, but historically, it hasn't had a measurably positive effect on the economy. Since the creation of the fed we've had larger depressions, not less. It's easy to say "Oh, it could have been worse," but that can only go so far when it's always the answer to failures.

10:49 dam bruh she rlly got us there

@ Adriene I love your sense of humor and the way you look at Jacob when he talks makes me laugh 😂

THIS HELPED ME FOR MY GLOBAL ECONOMICS! Keep up doing the good deeds :) Liked & subscribed

Everyone is economist on twitter.

Very relevant right now!

Awesome underground lair set!

Great review. Really helped me before my exam thanks :)

I love how extra the intro is

I love Evil Stan Voice. GIFF ME MOAR!!!

Awesome video !! You guys are awesome teachers :) Thanks

Every time I love Crash Course Economics a little more. I wish my teachers were like them hahaha

Who else is watching in 2020

One major problem with the US unemployment rate: Most of the drop of unemployment has resulted not from people finding jobs but from people dropping out of the labor force whatsoever and quitting their search for a job.

This was great, awesome job!

Great video and great series! By the way, I really like those laughs!!! They were really funny

Yes crash course :D

it's a bit fast...hard for beginners to catch.

what a great presentation, it all makes sense now. thanks

I am pleasantly surprised by the fact that you are actually getting the hang of it. Nice vid.

Keynes: Y'all mind if I BREAK SOME WINDOWS???

I feel like this debuted about a month too soon. ....was intended for Halloween and got a little too stimulus and jumped the gun.

Great intro and ending!

Thanks for this Wonderful Course Team!

"In the long run, we're all dead" LOL

The thing with tax cuts is that they're not created equal either. Cutting taxes on those who don't have much would have a greater multiplier than those who do. But you acted like everyone is taxed the same.

love yall, great energy!!

I love this series!!!

“Lower costs leads to more production then makes more jobs and the economy is back.”

Hayek FTW! Make a video about Hayek theories!

Mind blowing content with case study.

thank you for the wonderful lesson :)

This comments section: people who can't handle that economics is largely Keynesian.

Is she crying at 10:56? Great video anyway, loving the series.

I had to watch this for school but I left a like for the Empire strikes back/Phantom menace joke. Nice one!

Great videos as usual.

Crash Course Sociology? Crash Course Tale of Two Cities?

Uploading this when the GOP debate is on... you win this round Green Brothers.

Great episode!

ahh the YT space la new superhero set i see that you guys are taking full potential from your studio location nice

Yeah, can't say I wholy agree... The big problem is that this tool is cursed to fail by design, since it's usage will be always tending towards improving political agendas then fixing the economy.

Jacob, you speak too fast. STAHP! D:

hilarious opening and ending

That is such an awesome chair that Adriene is sitting in at the beginning and end of the episode. Where can I support the economy by buying the chair?

raising taxes is not part of austrian economics. So you cannot compare Europe to US. (at least not to say which school of economics works better) And you cannot judge how the program has worked until you stop the stimulus. So far fed raised rates by 1/4 point and the market is already freaking out and heading towards another recession. We will see if the keysian ideology has worked when we are back at normal interest rates. Before than its like saying that operation was successful before the patient woke up and is off the life support.

Here's an idea - low taxes, low govt. spending.

You should do a Kaynes Vs Hayek video, I'm a great fan and would love to see it explained by you

The fallacy that government spending creates jobs is hardly older than the rebuttal to it. While it is true that even a broken window helps the glazier to get some cash, the person who pays the glazier would otherwise have spent that money elsewhere. This means that no new capital has been created. Only the direction of spending has been altered. The same principle applies on a national scale; as the money used to build a road or a bridge isn't conjured out of thin air, but is simply a redirection of where that money would have been spent. So not only have you not created jobs, but you may well have destroyed some. All this before we get to the problem of national debt and inflation.

at 7:05 I was like "I thought u.s. debt went over $10t already, what happens to the clock?"so I googled and, guess what, another digit is added to it. that is so sarcastically convenient as how congress raises the debt ceiling

HAYEEEEEK

Love this!

Marshall & Lily teaching you life lessons!

Who else is here for the ib Econ test?

When the government tries to decide for the transactions of millions of citizens with different opinions, who know what is best for themselves, something get wrong.

You guys are doing a great job 😁

ohhh u guyzzz are awesome !!!! i love u people u people helped me a lot in studying thank u soooooooooooo much see you in harvard medical university !!!!!!!!!!!!

yeah.... taxes were only raised on the poor and working classes here in the UK, since they don't vote much, the Tory's cut the taxes of the super rich and corporations

Did she just compare laissez-faire economics to bloodletting and Keynesian economics to modern medicine? Wow.

Added to favorites lol well done

that's my manz from econ class!!! i can't believe they got him on these

Keynesian economics is the mechanism that fuels Crony Capitalism.

Keynes model worked great for Argentina... oh, wait...

THANK you SO MUCH!

so mindblowing!

Something tells me the intro was over budget

Yes, you can speak for the Eurozone, being "less successful". But that's the Eurozone, with it's massive problems such as, ooh, I don't know GREECE, and SPAIN, and ITALY, and their massive debts. The UNITED KINGDOM's GDP, however, is also growing, by 2.6 in 2014 and our unemployment in 2015 is 5.4%, a fantastic measure. And that's under 5 years of limited austerity under the coalition government. That's with 1 hand tied behind our back. This government is going to bring in more economic policy which will decrease unemployment even further, and reduce taxes, whilst reducing spending, and the economy's going to get even better in this country, whilst reducing the national debt.

I really panicked when the video started playing since I know nothing about fiscal policy and i'm writing a test about it...…. lol you had me good

NICE video, love the conspiracy joke XD

To prove that deficit spending is preferred than austerity, you gave the example of the U.S. vs. the Eurozone after the 2008 crisis, where the U.S. did spending and its economy grew, while the Eurozone had austerity and its economy contracted.I don't think you can compare them both. It's oranges and apples. U.S. has a strong economic structure, and only experienced a server debt crisis, but overcame it... on the other hand, Eurozone has very shaky political and economical structure, and the fiscal policy between Eurozone countries varies... so I don't think you can compare them. And besides, the U.K. and Germany both did austerity after the 2008 crisis, and yet their economies grew, and their unemployment was less than in the U.S.... As economists, please be more carful when you draw conclusions between two economies, and especially when it's about a hot political issue....Anyway, I still very much enjoy your videos, keep'em up!!Thank you

Don't ever put Empire Strikes back and... that _other_ movie in the same sentence ever again.

thank you for making this video

I learned more from this 12 minute video than from our 45 min econ discussion

Just one error to point out (behavioural economics): a musician wouldn't save 50%

>EU >Austerity Yeah, Okay. The only EU country that had any semblance of austerity was Estonia, and the multiplier effect is just a Broken Window fallacy. To add to that Hoover was not laissez faire in any sense.

It might have been helpful to discuss the debt-to-GDP ratio controversy caused by the Harvard study and the jaw-dropping revelation that Excel errors may have led to these divergent recovery approaches. It's still the most tragicomic thing I've ever heard, especially when you look at the suffering of the Greek people, and wonder how things could have turned out differently.

When the ACDC guy came, I was like "wuuuuhoooooooo"