Public finance manages government revenue, debt, and expenditure. Revenue comes from taxes, investments, and other government sources. Government expenditures include healthcare, infrastructure, and salaries. Budget outlines government spending during fiscal year
Federal government spends to support public and pay interest on borrowing. FY 0 spending was $0 out of every $10 in US production. Constitution gives Congress ability to create federal budget
Government spending includes consumption, investment, and transfer payments. Final consumption covers current needs like healthcare and education. Investment includes infrastructure and research for future benefits. Government spending can be self-financing but requires borrowing or taxes
Monetary and fiscal policy are tools used to influence national economic activity. Monetary policy is managed by central banks, fiscal policy by governments. Both policies work together to manage economy and businesses
Rising public sector spending reduces or eliminates private sector spending. Government needs revenue through taxes or Treasury securities sales. Higher taxes reduce private income and spending. Treasury sales increase borrowing costs and reduce borrowing demand
Multiplier effect measures proportional increase in income from capital injections. Calculated as change in income divided by change in spending. Every dollar of investment produces an extra dollar of income