Fiscal Policy And Its Effect On Economic Growth

Economically there are many challenges we face as a country with our current fiscal policies. Since the 2008 financial crisis, there have been many debates in regards to how we should go about managing our financial system. Unfortunately, we as team believe that in order for us to stabilize our nation financial issues we are going to have to make restrictions in certain channels, which might affecting our way of life. One area needing attention is government spending and how it has to be reduced, and this would have a ripple effect in certain areas. Our elected officials will have to come to a compromise and determine which sectors are costly and can be reduced.

Prior to the “Imperial Crisis” 1763-1775, Great Britain had a few set backs all while carrying the world on their shoulders. France was quickly moving out of North America and Spain was out of Florida, all while loosing power, allowing for Great Britain to only move up. After about one hundred years of continuous war, Great Britain had found themselves sinking in a pile of national debt due to the fact that they borrowed money by collected taxes to reduce or try and stabilize the debt they had already piled up. Another problem that arose was that the British taxpayers demanded and received many tax cuts, which reduced government income, only reducing the spending. Limiting spending only hurt Britain more, because it was very tough to decrease the disbursement when you are the biggest world power and have the responsibility to maintain a large army and navy, all well protecting your colony from the growing of large, powerful enemies.

This paper will be defining the works of deficit spending, including how it is used correctly and others used incorrectly. Other area will be relating to the advantages and disadvantages of deficit spending from a bigger picture instead of smaller things to look for. Another part of discussion within this essay will be the crowding-out effect; including the layout of the definition and also understanding in simplest terms for the report. Last area will include the discussion of short and long term effects of deficit spending. Various businesses can be affected by deficit spending for better or worse.

Soon enough the government is going to have to deal with their exploding debt load.

Fiscal policy is a system used for the economy that helps the fluctuation of financial goals by the alterations of government expenditures or taxes. There are two different fiscal policies used debating on the growth or decline of the economy. First is expansionary fiscal policy that is used to help boost the economy when it is in a decline like the recession our nation just witnessed along with prior years. Which in this case the government can decrease interest rates, and use tax incentives to help boost the financial system and private spending. Second is contractionary fiscal policy that is put into effect when the economy is at an incline and possible inflation is taking place. In which instead of decreasing interest rates they could raise

The United States impacts various policies not only at home but abroad. It has been a powerhouse for many years, and its strengths and weaknesses impact other countries. The deficit, surplus, and debt are three major areas influencing these policies. These three factors have a huge impact on many areas we will discuss. These include taxpayers, the future of Social Security and Medicare users, the unemployed, a University of Phoenix student, the United States’ financial reputation on an international level, a domestic automotive manufacturing, or exporter, Italian clothing company, or importer and Gross Domestic Product (GDP).

History tells us that tax cuts have had a simulative effect in the past. However, it is less certain how effective they will be at current debt levels. Remembering that our current debt to GDP ratio is approximately 105%, history has shown that once debt to GDP rises to 100% growth slows significantly. Additionally, since the end of the great recession in 2009, it has become evident that more government debt ($8.431 trillion) on top of several trillion in monetary stimulus has done little to spur economic growth.

For the money and trade, the Eurozone’s terrible economic performance bring heavy blow to Britain because European leaders did not implement the effective policies (Financial Times, 2015). Although fiscal space is adequate, the policies

A cut of healthcare benefit like Medicare and Medicaid will help lower the deficit, however, it will have a negative impact of those low income families that the reform will force to have a co pay when receive care. To offset those costs I proposed a tax reduction of 10% for low earners. Those cut will increase tax on businesses which will probably slow down business growth a little. That will also increase the unemployment for certain sectors.

The aim of this report is to examine the sustainability of the recently announced UK Government budget. A range of historical data and opinions were used to identify and compare current changes in public spending and revenue to previous periods in time. While in the current economic environment the budget deficit is not only affordable for the UK economy but also is desirable, as it helps to improve the productivity of capital and labour market, the main issue is that the Government debt continues to build up. The report investigates the ability of the UK Government to raise funds in a today’s challenging environment, as growing investors’ appetite for higher yields together with expectations of interest rate rise in the US may increase the outflow of funds to the US markets.

These austerity measures are generally used to reduce government spending, increase tax revenues or a combination of both. This means that many government programs are up for debate when selecting which are necessary and which can go without. As we reduce government spending it should lower the budget deficits and avoid a country from going into a debt crisis. There are many examples of this throughout history and we’ll touch on just a couple of those later in this paper. As mentioned

The government needs to keep paying its mandatory payments, so they need to look to discretionary spending. Discretionary spending makes up roughly 29 percent of the federal budget. That means you would have to cut more than a ¼ of all discretionary spending, or roughly ½ of the U.S. military. This leads to the next possible long term effect of the U.S. debt.

For that reason the Coalition’s strategy was produced to create conditions for a private sector led growth, utilising rapid measures to cut the budget deficit, primarily by reducing public spending. The budget specified a £40 billion package of tax increases, welfare cuts and Whitehall spending restraints designed to slash the deficit by the end of the Parliament.

Between 2007 and 2010, the United Kingdom's economy dropped like never before, with the largest deficits in the budget being experienced in 2007. The country could hardly sustain its economy, and relied greatly on borrowing from other governments abroad. Earlier in 2006, the country had experienced a deficit of over 3.0 %. In 2007, the deficit came to 2.75%, and all the potential businesses were affected as the previous investments in business fell from over 11% to around 10.25% of the entire Gross Domestic Product (GDP). In 2009, the situation got worse, with the investments into business by the government dropping rapidly from the 'normal', which was over 25%, to an average of 8.75% of the country's GDP. At almost the same time, the financial systems in the U.K were affected by the financial disability, and investors carefully withdrew their assets due to the risks that cropped up. This led to a deep and extreme recession in U.K, between 2008 and 2009 (Giudice, et al, 2011, p. 21)

In Foundations of Macroeconomics Seventh Edition by Bade and Parkin, chapter sixteen is titled Fiscal Policy. There are three objects for the chapter. The first object is to be able to “describe the federal budget process and the history of tax revenues, outlays, deficits, and debts”. The second object is to “explain how fiscal stimulus is used to fight a recession”. The third objective is to “explain the supply-side effects of fiscal policy on employment, potential GDP, and the economic growth rate”.