Relationship between Real GDP Growth and Transfer Payments Essay

b) In a recession, the number of people experiencing economic hardship increases, so induced transfer payments such as unemployment benefits and welfare benefits increase. Induced taxes and induced transfer payments decrease the multiplier effect of a change in autonomous expenditure such as investments, and moderate recessions making real GDP more stable. Discretionary fiscal policy would be used in an attempt to restore full employment. The government might increase its expenditure on goods and services, cut taxes, or do some of both, increasing aggregate demand. An increase in government expenditure or a cut in taxes increases aggregate expenditure as well.

As the United States sled into a great economic depression in the early 2000’s, the people of this country grew desperate and in need of government assistance. As with any economic downfall the unemployment rate grew to a staggering high. Most families were despondent to stay afloat the poverty line on whatever means possible. But what are the effects of continuously throwing money at people even when the economy bounces back? In an editorial recognizing these effects, “Welfare Dependency Destroying America,” John Mariotti, an advisor to and president of many successful companies explains why giving handouts aren’t always a positive matter.

Welfare in the United States has its roots in FDR’s Great Depression era policies of the New Deal. As part of the Social Security Act, cash transfers were made from the Federal Government to families with children and little-to-no income. In 1996 the system of welfare in the United States was drastically transformed under the Personal Responsibility and Work Opportunity Act, which replaced Aid to Families with Dependent Children (AFDC) with Temporary Assistance to Needy Families (TANF). One of the biggest changes that came about from this reform was how welfare was paid out. Instead of being a federal program, the administration of welfare payments was shifted to the states and funded through block grants.

In this paper, I will explain the roles and importance of the Business cycle Dating committee of the National Bureau of Economic Research. I will also explain how the NBER defines and dates recessions. Finally I will explain the important aspects and effects of the last recession.

Welfare has been a safety net for many Americans, when the alternative for them is going without food and shelter. Over the years, the government has provided income for the unemployed, food assistance for the hungry, and health care for the poor. The federal government in the nineteenth century started to provide minimal benefits for the poor. During the twentieth century the United States federal government established a more substantial welfare system to help Americans when they most needed it. In 1996, welfare reform occurred under President Bill Clinton and it significantly changed the structure of welfare. Social Security has gone through significant change from FDR’s signing of the program into law to President George W. Bush’s

Thus, critics argue that monetary policy is a more effective tool to fight recessions. Christina and David Romer demonstrated that fiscal policy rarely reacts with the immediacy necessary to enact change during a trough in economic activity. Romer finds that there has been no significance to discretionary fiscal policy during troughs, while monetary policy has a seemingly significant role during historical recessions. John Taylor agrees, stating that even in the face of the lower bound of zero on interest rates, additional measures such as quantitiative easing would prove effective countercyclical policy. Ultimately, both economists reach the conclusion that there is no significance to discretionary fiscal policy during a recession, instead determining that monetary policy is the more effective tool.

Not all aspects of economic growth are positive, for example when an economy is at, or near its full capacity of productivity prices can be driven up causing inflation and the devaluing of their currency, where each unit of currency buys fewer goods and services that it previously could have. It can increase the

I will also explain that this is difficult to decide whether fiscal policy or monetary policy was more effective than the other in stimulating growth in the U.S. after 2009 because each of them has their advantages and disadvantages in the short-term and long-term. My research has shown that both fiscal policy and monetary policy are effective in different aspects of stimulating the economic growth and

During times of economic recession or uncertainty, the government can enact expansionary fiscal policy to either combat a decline in economic function, or in times of extreme and potentially harmful economic growth, they can instead enact contractionary fiscal policy to reduce economic expansion. Expansionary fiscal policy is used to effect the economy in periods of recession or economic decline, through decreasing the tax rates imposed on tax sources, and by also increasing government spending on constructive programs and outlays. As a portion of expansionary fiscal policy, decreasing tax rates allows the constituents of the economy to increase their profits and revenue as a smaller portion of their income would be paid into taxes. An increased profitability of businesses and increased income for workers results in greater discretionary consumer and business spending creating a higher demand for normal goods and services along with increased per capita production due to greater profitability of said goods, which is economic growth. Economic recession can also be fought through expansionary fiscal policy by increasing government spending of taxed funds on government outlays. When the government uses taxed funds to increase government spending more goods and

The President of Bartavia wants to enact expansionary fiscal policy with the intention of manipulating inflation and unemployment. Although Bartavia is nearly employing all of its resources in production and extremely close to full employment level, the President is still concerned about the small percentage that is unemployed. Unemployment is the state of a person without a job or a reliable salary or income. Inflation and unemployment are characteristics that are closely monitored to indicate the economic performance of a country. As the economic advisor to the president, I would strongly advise against implementing this policy. Currently, the economy is not in a recession making the trade-offs associated with economic expansion counter intuitive. In addition, the Phillips Curve demonstrates the inverse relationship between inflation and unemployment, making the need for expansionary action unnecessary right now. Finally, Okun 's Law shows how this policy would effect Bartavia 's GDP via the sacrifice ratio. These three reasons show that the long-run consequences outweigh the short-run benefits of expansionary fiscal policy. Therefore, I implore the President to avoid implementing the expansionary policy.

The economic meaning of a recession is that the gross Domestic Product (GDP) has declined for two or more consecutive quarters. Unemployment rises, housing falls, stocks fall and the economy is in trouble. Whenever the government sees that the economy is entering a recession it is important for it to act. The U.S acted in two ways during the Great recession of 2008 through fiscal and monetary policies. Renaud Fillieule identifies that “ Monetary and credit expansions have been the main tools used by the U.S. government and central bank to try and recover economically from the Great Recession of 2008” (Fillieule r, Pg. 99 2016). These Keynesian policies are debatable among economist, none the less they were implemented and put the U.S on the road to recovery.

Theories about how the economy works and what will happen in the economy where there is monetary policy or fiscal policy intervention are appropriate in assisting policy-makers understand the possible implications of decisions they make or are under consideration. However, they are rarely complete models and often outcomes cannot be predicted. Reintroduction of a theory suggests that new evidence in support of the theory has been reported.

GDP consists of Gross (before taking into consideration the depreciation in the value of the product), Domestic (within the borders of a country) and Product which simply means a good or service. So what does it all mean when all these three factors are interlinked? GDP is simply the market value of all the final goods and services produced within a country in a given time period – usually a year (Parkin et al. 2005: 438).

Economic growth refers to the rate of increase in the total production of goods and services within an economy. Economic growth increases the productivity capacity of an economy, thereby allowing more wants to be satisfied. A growing economy increases employment opportunities, stimulates business enterprise and innovation. A sustained economic growth is fundamental to any nation wishing to raise its standard of living and provide a greater well being for all. Gross domestic product (GDP) is the monetary value of all final goods and services produced over a year. It is the total value of production within the economy. The total value of production is the total value of the final goods or services less the cost of

Increased spending on investment adds to aggregate demand and helps to restore normal levels of production and employment.Fiscal policy, on the other hand, can provide an additional tool to combat recessions and is particularly useful when the tools of monetary policy lose their effectiveness. When the government cuts taxes, it increases households’ disposable income, which encourages them to increase spending on consumption. When the government buys goods and services, it adds directly to aggregate demand. Moreover, these fiscal actions can have multiplier effects: Higher aggregate demand leads to higher incomes, which in turn induces additional consumer spending and further increases in aggregate demand.Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes. When the government gives a dollar in tax cuts to a household, part of that dollar may be saved rather than spent. The part of the dollar that is saved does not contribute to the aggregate demand for goods and services. By contrast, when the government spends a dollar buying a good or service, that dollar immediately and fully adds to aggregate demand.