US Fiscal Policy

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Before the Great Depression in 1929, the government relied on an approach known as laissez-faire. Laissez-faire allowed the economy to run its course without any government interference. However, when the Great Depression hit, the government knew that something had to be done in order to get a better control on the unemployment rate, the high inflation rate, and business decision making. With this came the U.S. Fiscal Policy. Fiscal policy is best defined as “the discretionary changing of government expenditures or taxes to achieve national economic goals” (Roger LeRoy Miller). The goals of fiscal policy are price stability with a low inflation rate (2%-3%) and a high employment rate.
Fiscal policy associates itself with the theories of a …show more content…
Fiscal Policy is controlled by the congress and the administration. This means that they manage how much money the government is spending and how much money is charged in taxes. The more challenging part of this job is the need to find a balance between the tax rates and the public spending. One of the biggest issues that congress faces with finding the right balance between the two is that lowering the taxes or increasing the spending can potentially lead to a rise in the inflation rate, which is exactly what is trying to be avoided with the implementation of the fiscal policy. “This is because an increase in the amount of money in the economy, followed by an increase in consumer demand, can result in a decrease in the value of money” (What is Fiscal Policy?). Also, if the economy was to take another hit as it did just a few years ago where businesses were not making ends meet, causing a rise in unemployment, and a decrease in consumer spending, congress would ultimately lower the taxation rate in order to fuel the economy positively in its time of need. Over time, consumers would be able to gain more spending money and the government’s spending would soon increase in order to cover different community services like construction projects on roads or schools which would make more jobs available. With the increase in consumer spending, the decline in unemployment rates, and the steady increase in the success of businesses the economy soon becomes healthy again. …show more content…
Individuals base their spending on how much money is remaining after their taxes have been paid. If they are charged more in taxes, the amount that they have to spend on personal expenses is limited. Businesses also look at the money they have remaining after taxes in order to see how much they are able to spend on everyday operations and long-term investments. People living in other countries pay most attention to the tax-inclusive cost of goods when they are considering buying products from the United States or other countries, since tax rates change to accommodate the needs of different areas. If all other things remained constant, an increase in the taxes could cause a decrease in the aggregate demand because of the decrease in consumption, spending, and the amount of exports being
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