Budget Surpluses (Revenues Exceed Expenses)
Read this section to learn about budget surpluses. It is pretty unlikely that the United States will see a budget surplus in the near future. This situation is present when the tax revenues collected are greater than the expenses of the United States government. Complete the exercise at the end of the section.
Fiscal Policy
Fiscal policy relies on the government's powers of spending and taxation. Both taxation and government spending can be used to reduce or increase the total supply of money in the economy – the total amount, in other words, that businesses and consumers have to spend. When the country is in a recession, the appropriate policy is to increase spending, reduce taxes, or both. Such expansionary actions will put more money in the hands of businesses and consumers, encouraging businesses to expand and consumers to buy more goods and services. When the economy is experiencing inflation, the opposite policy is adopted: the government will decrease spending or increase taxes, or both. Because such contractionary measures reduce spending by businesses and consumers, prices come down and inflation eases.