The basic tools of fiscal policy are contained in the federal budgetary process. Increase aggregate demand as a way of reducing unemployment. Raise consumer taxes, reduce government spending. There are aspects of federal taxation and spending that work toward automatically stabilizing the business cycle. Automatic stabilizers are a type of automatic or non-discretionary fiscal policy.
Taxes fall and low-income assistance spending rises during recessions.
Taxes rise and low-income assistance spending falls during periods of rapid growth. During recessions, automatic stabilizers lead to larger budget deficits, while during periods of rapid economic growth, automatic stabilizers lead to smaller budget deficits or even surpluses. The basic tools of monetary policy are controlled by the Federal Reserve Bank. Increase aggregate demand. Increase money supply, reduce discount rate or Fed funds rate.