ABSTRACT
This chapter examines how the government can influence economic outcomes with a focus on fiscal policy—what government spends, how it gets the money that it spends, and the impacts of these activities on the level of employment, output, and aggregate demand in the economy. It begins with a discussion on the components of the government budget. The government’s budget is composed of government spending, transfer payments, and taxes. The basic theory of government spending and taxes is presented. Taxes for federal social insurance programs, including Social Security, Medicaid, and Medicare, are collected in addition to federal income taxes. Corporations must file federal tax forms that are in many ways similar to the forms that individuals complete. This is followed by a discussion on the policy implications of these theories. The chapter examines the issue of government debt.
