What Is The Most Effective Fiscal Policy

Given the critical circumstances the United States economy faces today, the current fiscal policy, in addition to the changes that will be made in the future, is under intense scrutiny. During the Obama administration, which will soon come to an end in about six months, a variety of policies were created in attempts to create employment, raise our GDP, and boost the state of the economy, among other ideas. The fiscal policies created by Congress and the President demonstrate success in some areas, while failing in other areas, as many, including myself, would argue. As the 2016 election quickly approaches, it is important to remember previous fiscal mistakes and successes, and the current economy, in order to better grasp what will be necessary for a successful fiscal policy in the future.

Fiscal and monetary policy are alike because they are both meant for economic goals but differ in that fact that the government controls fiscal policy and the Federal Reserve controls monetary policy.

Taxation, the amount of money we pay every year and of course the government is a big spender has a lot of assets at its disposal to influence the economy. The government is a very large entity and controls a lot of money. Fiscal policy is more effective when trying to stimulate the economic growth rather than trying to slow down an economy that is overheating. The goal of fiscal policy is too accomplished by decreasing aggregate expenditures and aggregate demand through a decrease in government spending. Fiscal policy pros are; it can build up the operation electronic stabilizers. Well-timed fiscal stabilization together with automatic stabilizers can have an impact on the level of aggregate expenditure and activity in the economy. Fiscal policy can be picky by attempting specific category of the economy. For example, the government can be focused to concentrate education, housing, health or any specific industry area. Fiscal policy controls a spending tap. Fiscal policy can have a forceful effect if used in bankruptcy, because the government can open a spending tap to increase the level of aggregate

Our nation is currently in the middle of grim economic circumstances of stagflation. Inflation is high, and getting higher. Unemployment is high, and getting higher. While all of this happens, GDP continues to drop. If nothing is done about this, our nation is sure to suffer worse consequences than we have already been forced to endure. Our economy will be flushed down the toilet. This new economic policy is the answer to our prayers. With the perfect blend of fiscal and monetary policy, we will achieve our goal of curbing inflation and will reduce the price of goods and services. Although GDP will initially go down because of the decrease in personal income, overtime the reduction in prices will eventually

Fiscal policy involves the use of government altering the levels of spending, taxation and borrowing to influence the pattern of economic activity and affect the level of growth of aggregate demand, output and employment. The main goal of fiscal policy is to stimulate economic growth, keep inflation low (target of 2%) and to stabilise economic growth. There are two types of fiscal policy. Expansionary is linked to increases in government spending to boost economic activity and contractionary which is linked to decreasing government spending to lower economic activity.

The decisions made will lead to the real gross domestic product of the economy moving closer to the economy’s long-run potential output. During the year of 2xx8 defense spending on social welfare programs was decreased by $200 million. The income tax rate was increased by one percent. This will increase income tax revenues by $200 million. The budget deficit is 2.52 percent of the gross domestic product. The decisions made in the simulation increased popularity to 3.35.

One of the biggest benefits is that fiscal policy can be very effective in increasing the actual production and the decrease of the inflation rate. On the other hand, one of the mayors problems of fiscal policy is the increase in taxes. The benefits of monetary policy is basically its flexibility

The fiscal policy is one form of the expansionary policy, which comes in many form, In addition to transfer payments and rebates, the two major example of expansionary fiscal policy are increasing government spending and tax cuts. The goal of an expansionary fiscal policy is to improve the growth of the economy level of a country. Also to help the government reduce unemployment, and increase consumer demand and avoid an economic collapse.

Monetary policy is the regulation of the money supply to influence variables such as inflation, employment, and economic growth. Fiscal policies, on the other hand, use the ability to tax and spend in order to influence those same variables (McEachern, 2014, p. 57). A blend of both of these policies is essential for improving the economy when a recession has occurred.

The government has two tools of expansionary fiscal policy which are expansionary and contractionary. The difference in the two tools is that by taking the expansionary route the government is opting to stimulate the economy. Expansionary is most often the path taken during times of high unemployment or during a recession. The government cuts taxes, rebates as well as government spending. Lastly, another option the government may choose to take is called the contractionary fiscal policy this means that the government decides to decrease the amount of money such as increasing taxes and reduce the amount of money the government is spending.

Fiscal policies, if used efficiently, can be extremely effective and helpful to the economy. However, many pros and cons are tied to this method. Firstly, fiscal policies can be effective because they can focus spending to precise purposes.1 Therefore, the money that the government spends can be used on the things that would benefit the economy the most. Additionally, the government can reduce negative externalities with the use of taxes.1 An example of this would be taxing things that have a negative impact on the environment, such as companies producing an immense amount of pollution.1 Additionally, the government can also tax companies that are using too much of a limited resource.1 By doing this, the government not only can use the money gained from taxing to help the economy, but they would be reducing externalities such as these in order to help the country. Lastly, the effects of a fiscal period are much more immediate and quicker in comparison to a monetary policy,1 This means that the recessionary

Fiscal policy is often linked with Keynesianism (Michael Smith, Investpedia), which is derived from British economist John Maynard Keynes. Theories of Keynesianism have been used over time as they are popular and specifically applied to assuage economic downturns. The principle behind fiscal policy is influencing the level of aggregate demand in the economy to achieve economic factors of stabilizing the price, full employment and economic growth. Fiscal Policy is a government’s decision regarding spending and taxing. If a government wants to increase or restore growth in the economy, Spending rises. More items are purchased in spite of sticky prices, because of this the firm increases output.

Deficit spending generates the creation of wealth transfers from future taxpayers to future government shareholders. In the near future our children and future generations will have a portion of their personal earned incomes moved through higher tax rates compared to those who carry Treasury notes. Government debt causes our children to loose more rights and freedom. Deficit spending is very underhanded because it causes people o believe they are gaining something for nothing. In actuality, their personal wealth is reduced and gives the illusion that their money was covered by taxation. Information involving the overall cost is not even stated in the tax bill itself. Politicians tend to support deficit spending because it rewards special-interest groups and enlarges the state’s control of its private sector (Gwartney et al. 110). Without proper laws and restraints, legislators will drive up budget deficits and spend funds excessively (Gwartney et al. 110). When the government’s allocation of money exceeds its total revenue, a budget deficit occurs.

Expansionary fiscal policy results in a reduction of taxes and increased government spending and therefore increasing the demand level in an economy. The institution of expansionary fiscal policy raises disposable income through reduction of taxes in the economy and this improves the rate of consumption. Therefore, tax reduction is an appropriate expansionary fiscal policy that can be deployed to help an economy that could be undergoing a recession (DeLong & Summers, 2012). Consequently, tax reduction could be a vital government tool for increasing the Gross Domestic Product. Low taxes encourage individuals to work hard and thus boosting the county’s GDP.

There are two types of economic policies to control aggregate demand in a market economy. These two types are known as fiscal policy and monetary policy. Fiscal policy is when the government changes their taxing amounts and their spending, for the purpose of expanding or contracting aggregate demand. Monetary policy is the changes in interests rates and money supply to expand or contract the same demand, but it is under control of our central bank. When it comes to fiscal policy, the government does two very different things to promote economic growth, depending on what is going on in the economy at a certain time. For example, if our economy is in a recession and is failing, this policy would involve lowering taxes and reducing spending.