Question and answer
How does the federal government implement its fiscal policies? Given economic conditions today, do you suggest expansionary fiscal policy or contractionary fiscal policy? How would your suggestions
affect production and employment? Why?
The federal government implements fiscal policy utilizing its many legislative venues, each State has its own legislators that set fiscal policy for each of their own States, [ the Federal government has the senate and house to set its fiscal policies with the President approving laws passed by the combined Senate and House of Representatives. The government has implements its fiscal policies
via automatic controls and legislative changes. Automatic controls are ones that do not have to be voted on. These policies, such as; unemployment insurance and progressive taxes are already in place and have the most affect on the short-run changes in economic business cycles by dampening the rising or decreasing of income and spending. Whereas the legislative policy changes involving taxes or spending take time to write, be voted on and then implemented. The problem with these policies is the possible over-correction for a temporary fluctuation in the market. For today’s market, I would have chosen an expansionary policy that was cognizant of the potential recovery and reduced the targeted levels. Taking into consideration how the automatic controls operate to keep the peaks and valleys down to small hill and dales. Increases in the government spending coupled with tax cuts will result in an increase in overall incomes as more jobs become available. These increases will increase production and employment to meet the aggregate demand. In the business cycle, this will result in an increase in consumer spending which will result in an increase in prices that will then start the cycle of restricting purchases due to the lower purchasing power of the consumer’s money. ]
Expert answered|patmarone|Points 201|
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Asked 7/5/2011 9:18:09 AM
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