Current Economic Conditions: the Role of Fiscal and Monetary Policies in the United States

3692 Words Apr 16th, 2013 15 Pages
Current Economic Conditions:
The Role of Fiscal and Monetary Policies
In the United States

July 25th, 2012 Over the past ten years, we have seen a weary world with uncertain economic turns with more downswings than upswings. Some might say the worst affected economies have been the once invincible super-powers of the western world such as Western Europe and the United States. The ongoing uncertainties of the Euro as well as numerous bailouts have caused more speculation and fewer expectations. Critics argue that with proper policies and regulations the financial meltdown could have been assessed more efficiently or altogether prevented. The realization of uncontrollable powers such as political environments, foreign economies,
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Governments may not be able to control foreign or internal economic shocks, but they can ease and regulate through their fiscal spending, tax policies, and monetary policies.
Fiscal stimulus such as tax cuts or spending hikes by the government are intended to close the recessionary gap that we are experiencing and bring the economy to a full employment GDP. Keynes believed that the way to get out of a recession was obvious and it was to get someone to spend more on goods and services (Schiller). Even if it is the apparent way to help a recession, people are not going to go spend when their jobs are at risk. The policy constraint of expectations plays a huge role in the future of the economy. We have seen this because the unemployment rate is still around the same percentage as it was four years ago. The process is a cycle; if unemployment is low then so are GDP, production, and income even if interest rates are low and the government cutting taxes. No matter how much the government reassures the public, the change will not be instantaneous and it will take time to recover. To add to all of these factors, we must also look at tax policies.
We have seen in the past tax incentives stimulate growth through saving, investment, and work; however, deciding the best approach will be debated by economists and politicians. Two views for tax incentives are the supply-side theory and the Keynesian theory. Both of these theories end up
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