Study GuideEconomics–Fiscal and Monetary Policy1. Fiscal Policy1.1What Is Fiscal Policy?Fiscal policy refers to the actions taken by thegovernmentto manage the economy. It is carried outby thelegislative and executive branchesof government.The government mainly usestwo tools:•Government spending(on things like roads, schools, and national defense)•Taxes(collected from individuals and businesses to pay for these services)By changing spending and taxes, the government can influence overall economic activity.1.2Budget DeficitAbudget deficitoccurs when:•Governmentspending is greater than tax revenuein a year.To pay for this extra spending, the government:•Borrows money•Issues long-term, interest-bearing bondsAll outstanding government borrowing over time is called thenational debt.So, when the government runs a deficit, thenational debt increases.1.3Budget SurplusAbudget surplusoccurs when:•Governmenttax revenue is greater than spending.The extra money is usually used to:•Pay off existing national debtPreview Mode
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