Essay about Fiscal Policy Economics: Fiscal Policy Neutral Fiscal Policy

1. Essay about Fiscal Policy
Fiscal Policy
Most people nowadays seem to think that fiscal policy cannot be used to influence economic activity,
and they are supported in this view by the majority of professional macroeconomists. Students are
taught that output and employment are determined by the demands and supplies of individuals
interacting in a gigantic market and that governments cannot alter the outcome of this process except
temporarily and destructively. The Congressional Budget Office (CBO) bases its projections of the
federal budget on assumptions about output that are largely independent of fiscal policy. An
increase in federal expenditure, the CBO assumes, will have no positive effect at all on real output;
rather, it will have a negative effect,...show more content...
It is true that the present expansion, which has now lasted for more than six years, has been
accompanied by a tightening of the fiscal stance, but this has been possible only because there has
simultaneously been a long and sustained expansion of private expenditure financed by borrowing.
The article concludes that the expansion of net lending cannot continue for much longer without
making debt–income levels impossibly high; therefore, in contradiction to the political consensus of
the moment, fiscal policy will have to be expanded substantially and progressively compared with
what the CBO is now projecting if a prolonged recession is to be avoided.
The Theory Behind It
We assume that an addition to government expenditure increases the gross domestic product (GDP)
directly while a cut in the tax rate adds to private disposable income, thereby increasing GDP
indirectly. We maintain that the overall impact of the government's fiscal operations on the economy
can be measured by combining these two policy instruments into a single constructed variable – the
total flow of government expenditure divided by the average tax rate, which we call "the fiscal
stance," the definition of which implies that it would exactly equal GDP if the budget were
balanced.(1) The budget deficit, measured ex–post facto, is a bad measure of the
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2. Economics: Fiscal Policy
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...show more content...
With the disaster of the recession and the outcome made a drastic drop in the GDP that includes
investment, government spending and net exports. Decision making from the government has
been a crucial aspect on the recovery of the United States. Through this time expansionary
policies were put into effect, interest rates were reduced; tax cuts and breaks were put into place.
Individuals received earned income incentives along with an increase in child credit; and
corporate taxes that were decreased are just a few examples. Comparing to prior years
expansionary policies were higher through our recent recession then before. There is argument
whether or not those fixes have made a breakthrough for the economics of the country. Today the
economy is slowly making a comeback. As jobs are opening, and housing is getting back on track.
The fiscal drag is expected to make a positive impact, federal fiscal movements of contractionary
policy is anticipated to continue improving our economy over the next few years. Some downfalls
that can appear with fiscal policies are crowding out, time lags, and national debt. First, crowding
out when expansionary fiscal policy causes a decrease in planned investments or planned
consumption in the private sector. This usually creates a rise in interest rates (Miller 2012).
Second, lag phase when the economy is in a decline or increase economically there is information
that is gathered before a policy can be implemented. Than we cannot forget the time, it takes once
the policy is put into effect to know whether it has made a difference in the economics for the
country. Thirdly, national debt when our economy is at a decrease government spending is at an
increase. The United States is trillions of dollars in debt borrowing from
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3. Neutral Fiscal Policy
When Neutral fiscal policy is in equilibrium, it is usually undertaken. Expansionary policy involves
the government exceeding taxes and is undertaken during a recession. Contractionary policy happens
when the government costs are lower than the tax revenue and is also undertaken during recession.
Capital: The money someone put into the stock market or bank.
Labor: The people input manufacturing process is labor.
Land: Land includes all the natural and physical resources including silver, iron, gold, and oil.
Entrepreneurship: A person or people who want to supply the product to the market to make some
profit.
Stock Market is basically a stock exchange. An example of a stock market is the NASDAQ founded
in 1971.
An open outcry is a financial
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