Fiscal policy is manifested in a government's policies on taxation and expenditures. To obtain funds for their operation, government units generally collect some form of taxes. The expenditure of these funds not only provides goods and services for constituents, but has a direct impact on the economy. For example, if expenditures are larger than the funds received by the government, the resulting deficit tends to stimulate the economy, as goods and services are produced for government purchase. In contrast, if a government runs a surplus by not spending all the funds it collects, economic growth will generally be curtailed, as the surplus funds are removed from circulation in the economy.

The Federal Budget

In the United States, the fiscal process of the federal government begins each February with the president sending to Congress a proposed federal budget for the coming fiscal year, which begins in October...