Tools of Fiscal Policy

Fiscal policy can be implemented through two major means, adjusting taxes and/or making government purchases. There is a third policy option, using both tools at the same time. It is a detailed process that can have a powerful impact on the economy.

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2 Full Employment and Balanced Growth Act of 1978, excerpt from the Bill Summary.

Taxes

Income taxes are paid as a percentage of income. So, the level of spending by individuals and businesses is affected by tax rates. People base their spending on after-tax income, or disposable income. Businesses base their discretionary spending and investment decisions on after-tax profits.

If the economy is booming and experiencing inflation, Congress might increase ...

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