ABSTRACT
This chapter explains the government’s general influence on both the business cycle and the long-run economy. The accumulation of debt and the government’s management of the money supply also have long-run implications, and so do the government’s policies surrounding investment and innovation. The government could attempt to increase supply directly by, say, extending a tax breaks to businesses that expand their payrolls or productive capacities. Growth is hindered if tax policies discourage investments and government expenditures are wasteful. Growth is favored if the government uses taxes to build infrastructure, spread economic opportunity, and increase human capital. One key observation is that the government’s influence over the short-run economy is limited because its policy changes are usually incremental or focused on particular sectors or programs. America’s economy is large and influenced by many other things, including global politics, financial speculation, and the weather; and its fluctuations often have little to do with the actions of the current administration or Congress.
