Central banks have typically used monetary policy to either stimulate an economy into faster growth or slow down growth over fears of issues like inflation. The theory is that, by incentivizing individuals and businesses to borrow and spend, monetary policy will cause the economy to grow faster than normal. Conversely, by restricting spending and incentivizing savings, the economy will grow less quickly than normal. The Federal Reserve, also known as the "Fed," has frequently used three different policy tools to influence the economy: opening market operations, changing reserve requirements for banks and setting the "discount rate." Open market operations are carried out on a daily basis where the Fed buys and sells U.S. government bonds to either inject money into the economy or pull money out of circulation. By setting the reserve ratio, or the percentage of deposits that banks are required to hold and not lend back out, the Fed directly influences the amount of money created when banks make loans. The Fed can also target changes in the discount rate, or the interest rate charged by the Fed when making loans to financial institutions, which is intended to impact short-term interest rates across the entire economy. Fiscal policy tools are numerous and hotly debated among economists and political observers. Generally speaking, the aim of most government fiscal policies is to target the total level of spending, the total composition of spending, or both in an economy. The two most widely used means of affecting fiscal policy are changes in the role of government spending or in tax policy.If a government believes there is not enough spending and business activity in an economy, it can increase the amount of money it spends, often referred to as "stimulus" spending. If there are not enough tax receipts to pay for the spending increases, governments borrow money by issuing debt securities and, in the process, accumulate debt, or "deficit" spending.By increasing taxes, governments pull money out of the economy and slow business activity. Governments might instead lower taxes in an effort to encourage more activity, hoping to boost economic growth. When a government spends money or changes tax policy, it must choose where to spend or what to tax. In doing so, government policy can target specific communities, industries, investments or commodities to either favor or discourage. These considerations are often determined based on considerations that are not entirely economic.^[1]

• Legislative: Congress passes the budget and Congress acts on tax/spending legislation The Federal Reserve Board controls the monetary policy. Consists of Board of Governors, Reserve banks, and the Federal Open Market Committee.
• Executive: President proposes/prepares the budget and Signs/Vetoes legislation regarding taxes

• There are three reasons for the monetary policymaking controlled by the Federal Reserve Board: removes the politics from monetary policy decision making, FRB relies on only expertise when making decisions, FRB makes economic policies efficiently^[2]

The Federal Reserve Board is the major player in creating monetary policy. The OMB is the creates the budget before it goes to the President to be sent to the Legislative.

In the short term, changes in fiscal policies affect the overall economy primarily by influencing the demand for goods and services by consumers, businesses, and governments, which leads to changes in output relative to potential (maximum sustainable) output. For example, decreases in taxes and increases in government spending generally boost demand, which encourages businesses to gear up production and hire more workers than they otherwise would; tax increases and spending cuts generally reduce demand, which has the opposite effects. In addition, changes in the supply of labor (the number of hours of labor that workers would like to provide) can affect output in the short term if the labor market is sufficiently tight—that is, if the demand for workers is high relative to the supply.

In the longer term, changes in fiscal policies primarily affect output by altering people’s incentives to work and save as well as businesses’ incentive to invest, thereby changing potential output. For example, policy changes that reduce marginal tax rates—the percentage of an additional dollar of earnings that is unavailable to a taxpayer because it is paid in taxes—generally encourage more work and saving. As another example, policy changes that reduce the federal deficit typically lead to more national saving (the total amount of saving by households, businesses, and governments) and investment, ultimately boosting output and income. Changes to fiscal policies may also affect potential output by altering the amount of government investment (for example, spending or tax subsidies for infrastructure, education and training, or research and development).

Obviously the policy needs to be changed. With the current unemployment rate at 4.9% and the current poverty rate at 14.5%, the government’s fiscal policy is creating a policy vacuum in a way. This is slowly causing our nation to lose jobs and money. The major change that needs to be done is lowering the national debt without taxing the people. The government is supposed to have little influence in the creating of new businesses. With the current policy, small businesses are unable to survive because of the huge taxes to both the business itself and the owner. This is creating more power for corporations and causing them to rule the economy. The government needs to find a way to lower the national debt without increasing tax rates.^[3]

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