3.04 US Fiscal Policy
Joshua Crews 42313 2/8/16
The government can greatly influence the economy.
Two economic goals are efficiency and growth, the government monitors the economy closely. if things are not going well the government will "step in" to regulate the economy. When the economy declines the government may decrease taxes and increase its own spending, this can boost the economy and pull it out of recession, when inflation rises the government might increase taxes and decrease its spending to slow economic growth, these two methods are known as fiscal policies.
Vocabulary~~~~~~~~~~~~~
Expansionary Policies: Policies used by the government to expand the economy, increasing government spending or decrease in taxes.
Fiscal Policy: The practices the federal government uses to monitor and influence the economy, taxation. The government uses fiscal policies to control the economy so the nation can achieve the two goals of efficiency and growth.
Creating a budget for the U.S government
The federal budget is a document that shows how much the government expects to receive in taxes (revenues) as well as the expenses it will have during the year, the budget follows the federal fiscal year that starts on Octoboer 1 of a calender year and ends on september 30th on the following calendar year {Oct 1 2015-sept 30th 2016}
The 4 main steps in creating this budget are
1-Government agencies drow up proposals for money and give them to the office of management and budget also known as the OMB, which is responsible for creating the budget.
2-The OMB wit works with the current president to draw up the budget taking into account all the requests from the various agencies for their funding, the president then will present the final budjet to congress at the beginning of the calender year.
3-Congress will look over the final budget and make adjustments, the senate and budjet committees work together to form a series of resolutions. the appropriations committees of each house then submit bills to giver permissions for specific expenditures.
4-The bills are then sent back as their revised versions to the president who either signs them in to law or vetoes them, Congress can override the vetoes with a 2/3-majority vote but if this cannot be done then the President and congress must cooperate to work out a budget that both sides will agree to.
Fiscal Policies and the Economy~~~~
Increasing government spending allows a raise in demands for goods and services, a project can be started that will demand the materaisl for the job, the employer will then be able to pay his/her workers a salery to which then can use to buy goods and services they require.
Decreasing taxes allows people to have more money in their paychecks, they can use the money for goods and or services buisnesses can also keep the earnings and invest it back to help grow their buisnesses, this action can make economy stronger based of the demands of good and services will increase, people will spend more and the money will return to the economy.
Contractionary policies~~~~~~~
If teh government decreases spending this will help lower demand for goods and services so instead of a starting a project they close them down, inturn lowering demand of supplies, over all lowering cost of goods and services.
The government will increase taxes so people have less money to spend on goods and services which lowers the demand and production for goods slowing down the economy so inflation doesn't get to high. {It is a game of balance supply and demand, if you supply to much and the demand rises the prices will also rise with it, if you cut demand for supplies the price will then lower as the demand is less}
The national Debt~~~~
A deficit will most likly become a national debt, A deficit is the amount of money that a government overspends nad in turns ows, the debt is all the deficits added alltogether, this debt can effect the economy in a few ways.
Less money to support economic growth: People will not be able to buy the goods and services they require due to government bonds.
Less money to spend on government programs:The more bonds that are sold, the more people have to pay intrest back. Money nomrally ment for educational or health programs are instead going to pay the intrest for the bonds.
Less Confidence in the economy: People need to belive in a stable and safe economy, as well so does the countries allies, due to the lack of responsibility this can lower the countries moneys value across the world.
Government creates DEFICTS when it soends more then it TAXES, To make up for this it sells BONDS to investors to pay for the SERVICES it wants to provide, However, deficits can add up and become NATIONAL DEBT, National debt has three major NEGATIVE effects. It means less money is available to support economic GROWTH. It leaves the goverment less to spend on PROGRAMS. It can also make consumers and investors lose CONFIDENCE in the economy.