Monetary and fiscal policy are the two primary mechanisms used to stimulate and slow the economy. Monetary policy uses the availability of moneyùinterest rates, for exampleùto control how much money is available for investment and spending in the market. Fiscal policy, on the other hand, uses taxation and government spending to accelerate or decelerate the economy. While there can be many different goals for controlling capitalist economies, the overriding goal is to keep a balance between inflationùrising pricesùand deflation. Inflation is sometimes described as too many dollars chasing too few goods, which drives up prices. Deflation is inflation's opposite, or too few dollars chasing too many goods. In the first case, demand outpaces supply; in the second case of deflation, supply outpaces demand. In his article, "How Bush's Tax Cuts Will Really Work," Michael K. Evans analyzes recent fiscal policy and its probable effect on the American economy. This research considers that article and the tax cuts discussed in light of the theories of John Maynard Keynes.
Evans considers the issue of why the first round of tax cuts implemented by Bush did not result in the type of economic gains that similar cuts implemented during earlier administrations brought about. The theory behind using tax cuts to stimulate the economy is that the government is a less efficient consumer than the private sector; tax cuts move money from the government to the private sector. Consumers then purchase goods and services that stimulate demand for more such goods and services, and the economy picks up pace. Some of the difference in revenue to the government is recovered from increased corporate taxes as revenues shift from the government to corporations, and the economy recovers. The 2001 tax cuts did not have the expected results, however, and Evans concludes that the key reason for
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