In the United States, the president influences the process, but Congress must author and pass the bills. Fiscal Policy Tools. (v) This policy is a prolonged lag which in practice has a disturbing effect on the economy. When deciding fiscal policy, government officials have two tools that they can use. 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. What are the 2 basic types of tools the government uses to try to affect the economy? B. In the United States, fiscal policy is carried out by the executive and legislative branches of government. Learn more about fiscal policy in this article. Higher taxes or lower government expenditure is called contractionary policy. 1. Fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. This is the main source of government revenue and this is used to... See full answer below. For example, governments frequently spend more than they bring in through taxation. They are taxation and spending. Monetary policy also plays a key role. Monetary Policy. Fiscal policy is a key tool of macroeconomic policy, and consists of government spending and tax policy. An independent government agency, the Federal Reserve Board, sets monetary policy. Imagine that Sam is sick. Basically, fiscal policy intercedes in the business cycle by counteracting issues in an attempt to establish a healthier economy, and uses two tools - taxes and spending - to accomplish this. (2) Non Discretionary Controls. What are the two tools of fiscal policy that governments can use to stabilize an economy? Taxation: Taxation is a powerful instrument of fiscal policy in the hands of public authorities which greatly effect the changes in disposable income, consumption and investment. The instruments of fiscal policy are not the only tools policymakers use to promote healthy economic conditions. ... Fiscal policy can make use of either government spending or taxes, or a combination of the 2 tools... Fiscal policy generally focuses on. Monetary Policy 2. Fiscal Policy Tools and the Economy. The tools used by the government in implementing fiscal policy are: 1) Taxes. The main tools of fiscal policy are grouped under two main heads: (1) Discretionary Fiscal Policy. Whilst they are somewhat interlinked, they are not completely dependent on each other. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals. When government expenditure on goods and services increases, or tax revenue collection decreases, it is called an expansionary or reflationary stance. 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