Fiscal policy refers to the federal government's spending, budget, and tax policies set by the President and Congress. Learn how fiscal policy works and the ways it impacts the U.S. economy to better understand what it means for your personal finances.

How Fiscal Policy Impacts the Economy

Current U.S. Federal Government Spending
Frequently Asked Questions
  • What is fiscal policy?

    Fiscal policy refers to decisions the U.S. government makes about spending and collecting taxes and how these policy changes influence the economy. When the government makes financial decisions, it has to consider the effect those decisions will have on businesses, consumers, foreign markets, and other interested entities.

  • What is expansionary fiscal policy?

    Expansionary fiscal policy is when the government expands the money supply in the economy using budgetary tools to either increase spending or cut taxes—both of which provide consumers and businesses with more money to spend.

  • Who is responsible for fiscal policy?

    The President and their administration and Congress are responsible for fiscal policy. 

  • What are the primary tools of fiscal policy?

    The primary tools of fiscal policy are collecting taxes and government spending. The government can raise or lower taxes when needed to ensure its fiscal policy goals are achieved. The same goes for government spending.

  • What is contractionary fiscal policy?

    Contractionary fiscal policy is when the government either cuts spending or raises taxes. It gets its name from the way it contracts the economy. It reduces the amount of money available for businesses and consumers to spend to slow economic growth.

Key Terms

Explore Fiscal Policy

Image shows a woman holding a chart showing graph with bars indicating growth and four icons (scale, report, dollar sign, and calculator. Text reads: What To Know About Year-Over-Year. Allows for easy compassion overtime, Used to report main economic data like inflation numbers, GDP, and unemployment rates, Helpful tool for businesses and investors, and These calculations reveal trends but they can’t fully explain the details behind them.
What Is Year-Over-Year (YOY)?
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Who Owns the U.S. National Debt?
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U.S. National Debt by Year