Figure 1: Yellowstone National Park is one of the many national parks forced to close down during the government shut down in October 2013. (Credit: modification of work by “daveynin”/flickr Creative Commons)
Note: No Yellowstone Park?
Note: Introduction to Government Budgets and Fiscal Policy
In this chapter, you will learn about:
- Government Spending
- Federal Deficits and the National Debt
- Using Fiscal Policy to Fight Recessions, Unemployment, and Inflation
- Automatic Stabilizers
- Practical Problems with Discretionary Fiscal Policy
- The Question of a Balanced Budget
All levels of government—federal, state, and local—have budgets that show how much revenue the government expects to receive in taxes and other income and how the government plans to spend it. Budgets, however, can shift dramatically within a few years, as policy decisions and unexpected events shake up earlier tax and spending plans.
In this chapter, we revisit fiscal policy, which was first covered in Welcome to Economics! Fiscal policy is one of two policy tools for fine tuning the economy (the other is monetary policy). While monetary policy is made by policymakers at the Federal Reserve, fiscal policy is made by Congress and the President.
The discussion of fiscal policy focuses on how federal government taxing and spending affects aggregate demand. All government spending and taxes affect the economy, but fiscal policy focuses strictly on the policies of the federal government. We begin with an overview of U.S. government spending and taxes. We then discuss fiscal policy from a short-run perspective; that is, how government uses tax and spending policies to address recession, unemployment, and inflation; how periods of recession and growth affect government budgets; and the merits of balanced budget proposals.