Cobbe ECO2013 Fall 03 Chapter 16Page 1 of 18Objectives: 1.Describe the federal budget process and explain theeffects of fiscal policy.2. Describe the Federal Reserve’s monetary policy process and explain the effects of monetary policy.16.1 THE BUDGET AND FISCAL POLICYFiscal policyis the federal government’s policies toward revenue, transfers, purchases, and debt management. This has substantial effects on the distribution of income and well-being in the economy, but here we will concentrate on: the use of the federal budget to smooth the business cycle and encourage economic growth.16.1 THE BUDGET AND FISCAL POLICY<The Federal BudgetThe federal budgetis an annual statement of the expenditures, tax receipts, and the surplus or deficit of the government of the United States. Why annual? No reason other than convention. The “Fiscal Year” for the Federal Government runs Oct 1 to Sept 30. The government’s surplusor deficitis equal to its tax receipts minus its expenditures. That is,Budget surplus (+)/deficit (–) = Tax receipts – Expenditures
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