Government & Policy
Governments can have an enormous impact on the economy. Learn how the government affects taxes, trade, markets, interest rates, and more through policy, regulation, and legislation.
Government and the Economy
Frequently Asked Questions
How does the government control inflation?The most common way governments control inflation is by raising or lowering interest rates. Put simply, high interest rates counter inflation by reducing the money supply, and low interest rates promote inflation by increasing the money supply. In the U.S., the Federal Reserve indirectly controls interest rates through the federal funds rate, the interest rate banks charge each other for loans made overnight.Learn More: How Do Governments Fight Inflation?
What is the difference between communism and socialism?Communism and socialism both advocate for a more equitable distribution of wealth than that achieved under capitalism, but they differ in their means and the extremity of their vision. A basic premise of communism is that a communist order is achieved through a revolution in which the working class (proletariat) overthrows the ruling class (bourgeoisie). Socialism insists on working within existing systems to implement reform. Communism also advocates the dissolution of all private property so that all property is owned by the state, which distributes resources evenly between citizens. Under socialism, the means of accumulating wealth (industry and commerce) are collectively-owned and managed by the government, but property like homes and personal possessions can remain privately-owned.
How much does the U.S. spend on healthcare?According to Centers for Medicare & Medicaid Services, U.S. healthcare spending is expected to reach $6.2 trillion, or 20% of GDP, by 2028. In 2020, spending per person was $12,530, the highest of any developed country. Norway, which ranked second in terms of healthcare costs, spent $6,748 per person, almost half of U.S. expenditures.Learn More: Why U.S. Healthcare Spending Is Rising so Fast?
What is the difference between monetary policy and fiscal policy?Monetary policy refers to the actions taken by a central bank to achieve economic goals like low unemployment and stable prices. Monetary policy is often executed through the increase or decrease of the money supply. Fiscal policy refers to the government’s tax and spending plans. Fiscal policy is administered by the legislative and executive branches of government.
Discount WindowThe discount window is a Federal Reserve lending facility that makes short-term, collateralized loans to financial institutions. These loans are made to banks when they are experiencing liquidity shortfalls. The fed offers these loans at the discount rate, a fixed interest rate that the Federal Reserve usually sets slightly above the federal funds rate—the rate that applies to short-term loans between banks—to incentivize banks to borrow from each other rather than the central bank.
Corporate TaxCorporate taxes are, like an individual’s income taxes, a portion of a company’s profit levied by a government to finance public services. Though there is a set corporate tax rate in the U.S., companies often pay a much lower effective tax rate by exploiting loopholes, a subject of near-constant controversy.
Government-Sponsored Enterprise (GSE)A government-sponsored enterprise is a privately-run company that was established by the U.S. Congress to improve the flow of credit to certain sectors of the U.S. economy. The best-known GSEs are Fannie Mae and Freddie Mac, which essentially buy whole mortgage loans from lenders to sell to investors in smaller chunks. Though GSEs are not controlled by the government and their bonds are not backed by the U.S. Treasury, they enjoy the benefits of an “implicit guarantee” that the government won’t stand by while they fail or default on their debt.
Federal Insurance Contributions Act (FICA)
The Federal Insurance Contributions Act (FICA) is a U.S. law, passed in 1935 alongside the Social Security Act, that mandates a payroll tax to fund Social Security and Medicare. FICA taxes are levied at a rate set by the federal government every year, and are paid by both the employee and the employer. Self-employed individuals, since they do not have an employer, are subject to a similar law called the Self-Employed Contributions Act (SECA).
TariffTariffs are a tax imposed by a government on foreign goods when they enter the territory under that government’s control. Tariffs can be specific or ad valorem. Specific tariffs are levies of a specific amount of money per item or unit (e.g., $1 per pound of apples.) Ad valorem tariffs are levies of a percentage of the value of the import (e.g., 10% of a shipment of cars valued at $10 million.) Governments usually impose tariffs to support domestic producers by making their goods competitive with or more attractive than imported goods.
National DebtThe national debt is the amount of money a federal government owes creditors. National debt is accumulated when a government sells debt securities—Treasury bills, notes, and bonds, in the case of the U.S.—worth more than the revenue it brings in through, for example, taxes. Creditors can include individual investors, financial institutions, corporations, and even other countries’ governments.
Antitrust LawsAntitrust laws are regulations intended to ensure competition between companies within a market economy. Antitrust laws allow regulatory authorities to break up monopolies and block mergers and acquisitions that would over-concentrate market power. They also aim to prevent corporations from colluding with one another or forming cartels to fix prices and stymie challengers.
U.S. Debt by President: Dollar and Percentage
Rulemaking for Federal Agencies
Digital Markets Act (DMA): How the EU Law Will Work
What ‘Slowcession’ Means for Economic Growth
Pregnant Workers Fairness Act: Protections, Legal Remedies, Examples
Explore Government & Policy
Federal Pandemic Unemployment Programs: How They Worked
National Defense Authorization Act for FY 2023
National Labor Relations Board (NLRB) Definition
Office of Management and Budget (OMB)
Who Is Rishi Sunak?
Employee Plans Compliance Resolution System (EPCRS): What It Is, How to Use It
Bank Term Funding Program: Definition, Why It Was Created
Federal Emergency Management Agency (FEMA): How It Works, What It Provides
5 Reasons Why Supply-Side Economics Does Not Work
U.S. Export Restrictions: What Are They, and How Do They Work?
Sectoral Bargaining: What It Is, How It Works, Pro and Con Debate
Largest Indigenous Groups in the U.S.
What Is the Rural Energy for America Program?
Financial Help for Climate-Friendly Farmers, Ranchers
What Is the CHIPS and Science Act of 2022?
Inflation Reduction Act of 2022
What Is a Specific Performance Clause?
Firsts for American LGBTQ+ People
1973 Energy Crisis
North Atlantic Treaty Organization (NATO)
U.S. Trade Representative (USTR)
Housing Trust Fund (HTF)
Community Development Block Grant (CDBG)
FTC Takes On Pandemic Predators
Equal Pay Act of 1963: Overview, Benefits, Criticisms, FAQ
Lifeline Program for Low-Income Consumers
Infrastructure Investment and Jobs Act: Definition and Summary
Bank Merger Review Modernization Act
Technology Modernization Fund (TMF)
Biden's Proposals to Fight Emergencies and Climate Change
Community Land Trust
Section 230 Protection
SNAP Benefits by State
No Surprises Act Definition, Improved Healthcare Transparency
Paycheck Fairness Act
Rent Stabilization: What it is, How it Works, Examples
Milestones in Gender Equality
Supplemental Nutrition Assistance Program (SNAP)
Surface Transportation Board (STB)
Contract Buyers League
Federal Maritime Commission (FMC)
Women, Infants, and Children Nutrition Program (WIC)
Universal Service Fund
Understanding Infrastructure Legislation
Who Are the Richest U.S. Senators?
Servicemembers Civil Relief Act (SCRA)
Rural Electrification Act
Biden’s Executive Order on Promoting Competition in the American Economy
Countries Offering Digital Nomad Visas
Should Google Be Classified as a Public Utility?
Who Is Lina Khan?
Legal Milestones That Fight Income Inequality
Defense Production Act (DPA)