User:Keithck/sandbox

Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation's economy. When the government decides on the goods and services it purchases, the transfer payments it distributes, or the taxes it collects, it is engaging is fiscal policy. Until the Great Depression of the 1930s, it was generally held that the appropriate fiscal policy for the government was to maintain a balanced budget. The severity of these disturbances gave rise to a new set of ideas, first given formal treatment by the economist John Keynes, revolving around the idea that the government should exercise its economic influence to offset the cycle of expansion and contraction in the economy. Keynes’s rule was that the budget should be in deficit when the economy was experiencing low levels of activity and in surplus when boom conditions were in force.

Before the Great Depression in the United States, the government's approach to the economy was rather Laissez-faire. Following WWII, it was determined that the government had to take a proactive role in the economy to regulate unemployment, business cycles, inflation, and the cost of money. Initial experiments with this stabilizing technique in the United States during the first term (1933–37) of President Franklin D. Roosevelt’s administration were somewhat disappointing, partly because the amount of deficit financing was not large enough and, because the expectations of business had been dulled to such an extent by the Great Depression that it was slow to respond to opportunities. The policy he instituted was a part of The New Deal.

After enacting a tax cut in 1964 to stimulate economic growth and reduce unemployment, President Lyndon B. Johnson launched a series of expensive domestic spending programs designed to alleviate poverty. However, By the late 1990s, policy-makers were far less likely than their predecessors to use fiscal policy to achieve broad economic goals. Instead, they focused on narrower policy changes designed to strengthen the economy at the margins.