Chapter 1
Accounting and Financing
Course: Business Education Content Knowledge 5101
Subject: Business Education Content Knowledge5101
Chapter: Economics
1. Fiscal Policies Used by the Federal Government to Regulate the Economy
Overview of Fiscal Policy
Fiscal policy refers to the deliberate use of government spending and taxation to influence economic conditions, especially to manage the business cycle. In the United States, fiscal policy is implemented by Congress and the executive branch, particularly the President and the Department of the Treasury.
Fiscal policy is based on Keynesian economic theory, which asserts that aggregate demand is influenced by public-sector decisions. The government can intervene in times of economic contraction or inflation to stabilize output and employment.
Tools of Fiscal Policy
There are two primary tools:
- Government spending: Direct investment or payment in areas like infrastructure, education, healthcare, and defense.
- Taxation: Adjusting personal, corporate, or excise taxes to influence consumer spending and business investment.