Fiscal Policy is one of two components of macroeconomic policy, with the other component being monetary policy.
Respond to at least two of your fellow students’ and to your instructor’s posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.
Brianna Mortel
Part 1
Fiscal Policy is one of two components of macroeconomic policy, with the other component being monetary policy. According to Gwartney (2018), “fiscal policy relates to the government’s taxation and spending policies to achieve macroeconomic goals. In the United States, fiscal policy is conducted by Congress and the president.” Whereas the monetary policy is in relation to the amount of money the nation has. Both of these combined with other factors such as GDP shows the nation’s health and stability. In my own words, fiscal policy occurs when the economy is shifting one way or the other and the government adjusts its taxes and spending to influence the economy. In the previous chapters, we learned how economies go through the business cycle. The fiscal policy follows this cycle to determine if the government should spend their money (usually in the expansion phase) or preserve their money (usually in the recession phase).
Fiscal policy can be broken down into two types: expansionary and contractionary. “Expansionary fiscal policy involves the measures taken by the government to put more money back into the economy…It creates jobs and increases profits – stimulating economic growth” (Amadeo, 2020). This usually occurs during the recession phase of the business cycle. “The second type of fiscal policy is contractionary, used during economic booms. Since expansions can also be dangerous for an economy, the government tries to slow them down they become too intense” (Amadeo, 2020). This is where the government collects more taxes and reduces its spending. Generally, these policies impact the demand. What is often overlooked is the supply-side. This side is growth-oriented that feels the impacts of tax changes.
Part 2
Fiscal Policy can be looked at from a political perspective. Conservatives favor tax cuts whereas liberals are more inclined towards government spending. For example, “The Bush administration used an expansive fiscal policy to end the 2001 recession and cut income taxes with the Economic Growth and Tax Relief Reconciliation Act, which mailed out tax rebates” (Amadeo, 2020). This worked for a brief period of time, but then 9/11 happened and that sent the economy spiraling back down. There was nothing the Bush administration could’ve done to influence the fiscal policy on the economy given the unknown nature of 9/11. However, Bush recovered the economy when he launched “the War on Terror and cut business taxes in 2003. By 2004, the economy was in good shape with unemployment at just 5.4%” (Amadeo, 2020).
Resources
Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from https://www.cengage.com
Amadeo, K. (2020, August 19). What Is Fiscal Policy? The Balance. https://www.thebalance.com/what-is-fiscal-policy-types-objectives-and-tools-3305844.
Amadeo, K. (2020, August 28). Expansionary Fiscal Policy and How It Affects You. The Balance. https://www.thebalance.com/expansionary-fiscal-policy-purpose-examples-how-it-works-3305792
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