Federal Budget & Fiscal Policy

Pocket Veto

The President's decision to take no action on a bill within 10 days, resulting in the bill being vetoed.

Expansionary Fiscal Policy

A policy that involves increasing government spending and cutting taxes to stimulate the economy and prevent or end a recession or depression.

Stimulus

Financial aid or support provided by the government to stimulate economic growth and boost consumer spending.

Contractionary Fiscal Policy

A policy that involves reducing government spending and increasing taxes simultaneously in order to slow down the economy.

Spending + Revenue

The difference between government spending and revenue, which affects the amount of interest the government has to pay.

Fiscal Policy

The use of government spending and taxation to influence the economy, either by slowing it down or speeding it up, involving increased government interference in supply and demand.

Entitlements

Programs such as Social Security, Medicare, and Medicaid that guarantee certain benefits to individuals, which are increasing due to the aging population and require increased taxes or borrowing to sustain, subject to political pressures.

House of Cards

A situation where a small event or factor can cause the collapse of a larger system or structure.

John Maynard Keynes

General Theory of EMployment; advocated for government involvement in the economy, promoting the use of fiscal policies to boost the economy in the short run, rather than solely relying on long-term measures.

Multiplier Effect

The impact of government injecting a large sum of money into the economy, which trickles down to different groups and individuals, contributing to government interest payments.

Deficit Spending

When government expenditures exceed revenues, resulting in a consistent deficit in the government's budget.

Milton Friedman

An economist who promoted laissez-faire policies, emphasizing individual freedom in the economy.

Step 1 (Federal Budget)

agencies submit spending proposals

Step 2 (Federal Budget)

Exec. Branch draws up the budget

Step 3 (Federal Budget)

Congress debates the budget (House and Senate, 2/3 must vote for it)

Step 4 (Federal Budget)

goes back to the White House (Sign it, Veto, or Pocket Veto)

Step 5 (Federal Budget)

Congress can override a veto by 2/3 majority or it can compromise w/ the President

Classical Economics (Economic School of Thought)

free market; the economy regulates itself, supply/demand always returns to the equilibrium; no gov’t influence

Keynesian Economics (Economic School of Thought)

gov’t should buy goods/services when necessary to encourage full productive capacity, stimulate the economy, and increase employment

Supply-side Economics (Economic School of Thought)

the supply of goods drives the economy; lower taxes encourage economic activity

Laffer Curve

the less you tax the more people spend (less gov’t revenue), and the more you tax the less people spend (less income for citizens)