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Focus Question: How does the government use taxes and spending to promote economic growth?


Fiscal Policy- The way in which a government adjusts how it spends its money in order to influence and observe a nation's economy.
  • Before the Great Depression, the United States government developed an economy that was laissez faire ( strongly opposed to government intervention), but following WWII it was decided that the government needed to be more involved in economic decisions.
    • It was then decided that the government should increase or decrease taxes as needed,and incentivize public spending in order to help curb inflation, create new jobs, and stabilize the currency value.The goal of the government therefore is to find a balance in which taxes aren't too high or too low in order to create new jobs.
      • It is now broadly assumed that the government must ensure that for the economy to thrive inflation does not get out of hand and once again hinder any type of economic growth. Ideally, if the government is able to create balance, then people will have enough money to spend and pump back into the economy, thus creating a surplus.

Multimedia.pngThis video by Dr. Mary J. McGlasson does a great job of summing up the fiscal policy, and expaining how it plays a role in promoting economic growth.

WhiteHouseSouthFacade.JPGYour 2012 Federal Taxpayer Receipt shows how tax dollars are spent, from the White House website.
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How the Federal Government Spends its Money



rotating gif.gifFor an historical perspective on changing governmental approaches to taxes, see United States History II.29 on the Presidency of Ronald Reagan and his approach called Reaganomics.


Click here for the most current estimation of the United States' National Debt.

Balanced Fiscal Policy.jpg