Interactions Between Government and Economics. Reaction Paper

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The Federal Reserve System is mandated with contributing to the management of all three of these measures. The role of the Federal Reserve is to control money supply, something it does via the setting interest rates and through open market operations. The Federal Reserve works independent of the White House, although there may be consultations to ensure a match between fiscal and monetary policy.

One concept that heavily influences both monetary policy and fiscal policy is incrementalism. This is the idea that future actions will be built on past actions. There will be no sudden moves in either form of policy, and seldom are programs and spending levels subject to considerable scrutiny -- most changes are therefore incremental. This allows policymakers to avoid major shocks. The process by which fiscal policy is set revolves around the budget. The Office of Management and Budget spends 16-18 months preparing the budgets based on the requests of agencies, again of an incremental nature.

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Entitlement programs such as Medicare and Social Security are analyzed to predict future expenditures for the coming budget cycle, and as these form a major part of the budget these estimates are critical. The OMB then presents the budget to Congress, where it is given consideration. There are thirteen different appropriations bills that cover different spending categories, and these must be approved (to acts) before money can be spent. There are two committees in the House and Senate that cover the issue of taxation. The result of this process is the ability of the government to raise revenues and disperse those revenues in accordance with the budget items that are first laid out by the OMB and then….....

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