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Federal Budget and Economic Policy (Classical or Keynesian (Keynesian…
Federal Budget and Economic Policy
The Federal Budget is the government's estimate of spending and revenue for each fiscal year from October 1 through September 30
The federal budget comes from taxes on incomes, business profits, and imports
Expansionary Fiscal Policy
Budget deficit occurs when the government spends more than there is revenue available to pay for the spending
Each year's deficit is added to the sovereign debt.
Tax cuts are reductions in the rate of tax charged by the government
Government spending
27% of the federal budget includes Medicare and health.
33% of the federal budget includes social security
16% of the federal budget includes military spending.
4% of the federal budget includes the Veterans' benefits spending.
4% of the federal budget includes agriculture.
the rest of the 16% includes Transportation, Housing, International affairs, and Education.
6% of the federal budget is spent on interest on debt.
Categories of Spending
Mandatory Budget
Mandatory spending is spending that Congress legislates outside of the annual appropriations process, usually less than once a year. It is dominated by the well-known earned-benefit programs Social Security and Medicare.
Social Security, Medicare, Medicaid, and other benefits
Discretionary Spending
Discretionary spending refers to the portion of the budget that is decided by Congress through the annual appropriations process each year. These spending levels are set each year by Congress
Health and Human Services, Justice Department, U.S. Treasury
Budget Process
The President submits a budget request to Congress.
The House and Senate pass budget resolutions.
House and Senate Appropriations subcommittees "markup" appropriations bills.
The House and Senate vote on appropriations bills and reconcile differences
The President signs each appropriations bill and the budget becomes law.
The president must sign each appropriations bill after it has passed Congress for the bill to become law. When the president has signed all 12 appropriations bills, the budget process is complete.
The full House and Senate then debate and vote on appropriations bills from each of the 12 subcommittees.
The Appropriations Committees in both the House and Senate are broken down into smaller appropriations subcommittees. Subcommittees cover different areas of the federal government. All subcommittees hear the bill and vote and pass it to the full House or Senate.
Subcommittees are formed by most committees to share specific tasks within the jurisdiction of the full committee. Subcommittees are responsible to, and work within the guidelines established by, their parent committees.
After the president submits his or her budget request, the House Committee on the Budget and the Senate Committee on the Budget each write and vote on their own budget resolutions.
The President and the Office of Management and Budget solicit and accept budget requests from federal agencies, outlining what programs need more funding, what could be cut, and what new priorities each agency would like to fund.
Classical or Keynesian
Keynesian Economics
Keynesian Economics comprises various economic theories about how in the short run, economic output is strongly influenced by Aggregate Demand.
Keynesian Economics was pivotal in reviving the U.S. economy during the Great Depression as FDR implemented The New Deal, which involved a large amount of government spending to boost the aggregate demand.
Monetary Policy
Contractionary
Contractionary monetary policy includes the central bank (government) selling bonds.
When the Central bank sells bonds, the economy is slowed down as the money supply decreases.
Expansionary
Expansionary monetary policy includes the central bank (government) buying bonds.
When the Central bank buys bonds, the economy is stimulated as the money supply increases.
Fiscal Policy
Contractionary
Contractionary Fiscal policy is used during an expansionary phase of the business cycle in order to reduce inflation.
Intended to slow Aggregate demand by either decreasing government spending, increasing taxes, or a combination of both.
Expansionary
Expansionary Fiscal policy is used during the contractionary phase of the business cycle.
Expansionary Fiscal policy includes an increase in Government spending and tax cuts.This increase Aggregate demand as government spending increases and consumer/investment increases as consumers are given more spending power.
Classical Economics
Economic Theory in which change in supply will always be met with change in demand. Essentially, the less government intervention, the better as the economy is always self correcting.
Congress' power to create laws and set the budget means it has the power to set fiscal policy. When spending increases or taxes are cut, that's expansionary fiscal policy.
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Federal Budget
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Economic Policy
Congress Influence on Economic Policy
