A:

Generally speaking, the Republican Party is considered business friendly as it favors limited government regulation of the economy. This includes less regulation on business, such as restrictions that might seek to relegate the pursuit of profits to environmental concerns, labor union interests, healthcare benefits and retirement payouts. Given this more pro-business bias, Republicans tend to receive support from the owners of business and investment capital, as opposed to the labor component that constitutes workers and their interests.

Democrats are said to rely more heavily on government intervention to influence the economy's direction and keep the profit motive of businesses more at bay. Higher regulation comes with increased costs, which Democrats can support through higher taxation. As a result, the party is also described as "tax and spend," with a belief that businesses are more focused on earning a return for shareholders and willing to cut corners in terms of protecting the overall social good.

During economic downturns, Democrats will, therefore, tend to believe that deficit spending is necessary to help stimulate the economy until private business prospects improve. Influencing government spending levels is referred to as fiscal policy. They might also look to enhance and extend welfare programs to help citizens that have lost their jobs or are more in need due to more challenging economic conditions. Republicans would tend to rely less on government intervention but might push more monetary levels, which seek to alter the money supply. Lowering the Federal funds rate and the banking reserve ratios qualify as monetary policy levers they can pull.

The reality is that the lines between what are considered traditional Republican and Democratic approaches to regulating the economy are more blurred. The U.S. has run a budget deficit for nearly three decades, meaning it has spent more than it has taken in. This has increased the role of government in the economy and has meant that spending has continued in good times or bad. Government politicians also have personal differences in how they manage the economy, but knowing their party affiliation can still be a solid indicator in the approach they may take in influencing the economy.

RELATED FAQS
  1. What is the role of deficit spending in fiscal policy?

    Read about the role deficit spending can play in a government's fiscal policy, and learn why economists are torn about the ... Read Answer >>
  2. What is the effect of a fiscal deficit on the economy?

    Take a deeper look into the real impacts of government budget deficits on the economy, and why government financing reduces ... Read Answer >>
  3. What impact does economics have on government policy?

    Learn about the impact of economic conditions on government policy and understand how governments engineer economic conditions ... Read Answer >>
  4. Is there any limit on fiscal deficits at the federal level?

    Discover the legal, theoretical, practical and political limitations imposed on the fiscal deficits accumulated by the U.S. ... Read Answer >>
  5. Why is the U.S. stock market doing well despite the recent U.S. economic downturn?

    The U.S. economy is one of the largest and most important economies of the world. With the continual growth of its GDP, the ... Read Answer >>
Related Articles
  1. Insights

    GOP Vs. Democrats: Who's Best For America's Economy?

    Here's a look at the fiscal plans of past presidents and politicians that can be used to determine which political party is better for the bottom line of America's economy.
  2. Insights

    The Top Republican Donors

    According to latest data from the Center for Responsive Politics, corporations and businesses are majority contributors to the party.
  3. Investing

    For Higher Stock Returns, Vote Republican Or Democrat?

    The president's political party is correlated to market performance. Find out which party tends to outperform.
  4. Insights

    Top Democrat Donors

    The Center for Responsive Politics recently released a list of major donors to both parties since the 2002 election cycle.
  5. Investing

    Play Politics With ETFs ... for Real

    If these ETFs come to market, they could give investors direct lines politically inspired market moves.
  6. Insights

    What is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  7. Investing

    Whose Money Keeps the Republican Party Rolling (VHI, LVS)

    We'll take a look at largest Republican donors, a collection of moguls, magnates, shadowy corporations and more than one donor from beyond the grave.
  8. Insights

    Tea Party Vs. Republican Party: Who Will Win In 2016?

    What agendas define the rift between the Tea Party and the Republican establishment, and which side will win the presidential nomination in 2016?
  9. Taxes

    Trump, GOP Release Tax Reform Plan

    A "middle class miracle"? Or "fiscal fantasy"?
  10. Insights

    Free Markets: What's The Cost?

    Some argue that when the free market fails to protect consumers, government regulation is required.
RELATED TERMS
  1. Deficit Spending

    When a government's expenditures exceed its revenues, causing ...
  2. Economic Stimulus

    Attempts by governments or government agencies to financially ...
  3. Limited Government

    A political system in which legalized force is restricted through ...
  4. Capitalism

    A definition of capitalism, describing its history, how it differs ...
  5. Budget Deficit

    A status of financial health in which expenditures exceed revenue. ...
  6. Regulation F

    A regulation set forth by the Federal Reserve. Regulation F specifies ...
Hot Definitions
  1. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  2. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  5. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
  6. Interest Rate Swap

    An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for ...
Trading Center