Fiscal Policy and Government's Role
Aligned to C3.D2.Eco.5 — C3 Framework for Social Studies State Standards.
What this lesson teaches
Fiscal policy is the government's use of taxing and spending to influence the overall economy. Expansionary policy, such as cutting taxes or increasing spending, is meant to boost demand during a downturn, while contractionary policy does the opposite to cool an overheating economy. When the government spends more than it collects in taxes, it runs a deficit that adds to the national debt.
Worked example
The 2009 American Recovery and Reinvestment Act combined tax cuts and roughly $787 billion in new spending to stimulate demand during the Great Recession.
Practice questions
- Define fiscal policy and name its two main tools.
- Explain the difference between expansionary and contractionary fiscal policy.
- Analyze how repeated budget deficits can affect the national debt over time.
Watch the lesson
Every lesson comes with a video taught in English and Spanish — the same video the QR code in the printed workbook opens.
▶ Watch this lessonEn español
Política fiscal y el papel del gobierno
La política fiscal es el uso que hace el gobierno de los impuestos y el gasto para influir en la economía en general. La política expansiva, como bajar impuestos o aumentar el gasto, busca impulsar la demanda durante una recesión, mientras que la política contractiva hace lo contrario para enfriar una economía sobrecalentada. Cuando el gobierno gasta más de lo que recauda en impuestos, incurre en un déficit que se suma a la deuda nacional.
Ejemplo: La Ley de Recuperación y Reinversión de 2009 combinó recortes de impuestos y unos 787 mil millones de dólares en gasto nuevo para estimular la demanda durante la Gran Recesión.
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