Deficits and Business Cycles

Yet another role of the federal government is to stabilize the economy, which may at times involve increasing the deficit. The macroeconomic objectives of the government are to encourage economic growth, minimize inflation, and spur employment. The U.S. government attempts to contribute to a strong U.S. economy through the execution of economic policies. The government has two main choices—fiscal policy and monetary policy.

Fiscal policy, implemented by the president and Congress, is the adjustment of taxation and/or government spending to influence the overall economy. Monetary policy is employed by the Federal Reserve Bank (“the Fed”), which manipulates the money supply, interest rates, and availability of credit ...

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