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Government spending can be a useful economic policy tool for governments. Fiscal policy can be defined as the use of government spending and/or taxation as a mechanism to influence an economy. [13] [14] There are two types of fiscal policy: expansionary fiscal policy, and contractionary fiscal policy. Expansionary fiscal policy is an increase ...
National defense spending is any government spending attributable to the maintenance and strengthening of the United States Armed Forces, including the Army, Navy, Marines, and the Air Force. [14] As of the fiscal year 2019 budget approved by Congress, national defense is the largest discretionary expenditure in the federal budget. [13]
The United States federal budget is divided into three categories: mandatory spending, discretionary spending, and interest on debt. Also known as entitlement spending, in US fiscal policy, mandatory spending is government spending on certain programs that are required by law. [1] Congress established mandatory programs under authorization laws.
Since the spending is typically for a fixed period (usually a year), it is said to be under the discretion of the Congress. Some appropriations last for more than one year (see Appropriation bill for details). In particular, multi-year appropriations are often used for housing programs and military procurement programs.
Government can pay for spending by borrowing (for example, with government bonds), although borrowing is a method of distributing tax burdens through time rather than a replacement for taxes. A deficit is the difference between government spending and revenues.
Defense Spending 2001–2017 Interest to GDP, a measure of debt burden, was very low in 2015 but is projected to rise with both interest rates and debt levels over the 2016-2026 period. During FY2018, the federal government spent $4.11 trillion, up $127 billion or 3.2% vs. FY2017 spending of $3.99 trillion.
In some cases, the federal government pays [16] for a program and gives broad discretion to the states as to how to carry out the mandate. In other cases, the federal government essentially dictates all the terms, and the states simply administer the program. Government budget is a subject of importance for a variety of reasons:
Contractionary fiscal policy, on the other hand, is a measure to increase tax rates and decrease government spending. It occurs when government deficit spending is lower than usual. This has the potential to slow economic growth if inflation, which was caused by a significant increase in aggregate demand and the supply of money, is excessive.