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With large investment being placed into a new fiscal stimulus package, the resulting injection will significantly effect the level of economic output. However, the significance of this change depends greatly upon the positioning of the macro-economic equilibrium before the stimulus. This stimulus package qualifies itself to be a form of fiscal policy, and therefore a form government spending, which is a component of aggregate demand. Therefore due to this large monetary injection from behalf of the AD curve will undergo a rightward shift. That said, as demonstrated on the graph above that the economy is far from reaching full capacity utilization, therefore a shift right in the AD curve has very a slight effect on price level however, a significant change in real GDP. This is due to the fact the economy is still operating on the elastic side of the curve. Moreover, there is the possibility of a rightward shift in aggregate supply as a result of the stimulus injection. This therefore as a consequence will encourage firms to meet the demands of the surge in the aggregate demand curve through the purchase of capital goods in aid of production, new forms of technology and further investment in order to increase capacity utilization. Thus increasing economic output.…
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The economy has been in a rough shape for a number of years. Many people have lost their jobs, their homes, their savings, and their confidence. Although the recession lasted for a while, the nation is going through a recovery mode. As the new senior economic advisor to the President of the United States, I need to recommend a plan of action to help curve inflation, unemployment, and economic instability. First, I have to take a look at what my colleagues recommend and take into account our monetary and fiscal policies.…
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Expansionary policy is a macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflation. One form of expansionary policy is fiscal policy, which comes in the form of tax cuts, rebates and increased government spending. Expansionary policies can also come from central banks, which focus on increasing the money supply in the economy. The U.S. Federal Reserve employs expansionary policies whenever it lowers the standard fed funds rate or discount rate or when it buys Treasury bonds on the open market, thereby injecting capital directly into the economy. I will focus this paper on these policies and theories, and how the federal government would engage them in an effort to move the economy out of a recession.…
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Fiscal Policy is described as changing the taxing and spending of the federal government for purposes of expanding or contracting the level of aggregate demand; these are designed to increase short-run economic growth. In a recession, an expansionary fiscal policy involves lowering taxes and increasing government spending. By cutting taxes, increasing government spending programs, and increasing transfer payments, more money is in the economy, more income, and more spending. This can be done through the federal budget process; however, the problem with fiscal policy is lag time. This process can take so long (as long as a year or more) that Discretionary Fiscal Policy is very rarely used in the federal government; still, the lag between a change in fiscal policy and its effect on output tends to be shorter than the lag for monetary policy. Instead, the government uses Nondiscretionary Fiscal Policy (Automatic Stabilizers). This fiscal policy is built into the structure of federal taxes and spending. Some examples of this are the progressive income tax (the major source of federal revenue) and the welfare systems, which both act to increase AD in recessions.…
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Suggest and justify elements of fiscal and monetary policies that would help achieve its objectives…
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I asked my dad what he thought the best time for America was and he said it was when everyone was granted the right to vote (not denied by gender or race). He said this was a good time for America because it gave everyone a chance to choose who they wanted to be ruled under or who they wanted to represent them as a state. He liked how the American people could vote for someone whom they agreed views with. Furthermore, he said that another reputable time for America was the economy after the 2008 recession. During the 2008 recession, many Americans were losing jobs, money, and affordability of the necessities to live like food and shelter. Anyhow, after the recession, people were getting their jobs back and were able to stimulate the…
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Unfortunately, a worldwide recession is not such an unbelievable idea anymore. Cooperation across the globe would mean strategies can be put into place to avoid this type of devastation. There are three things that should be addressed to avoid severe economic shocks and work towards a more stable global economy. First of all each country would need to start at home making sure their economy is strong (especially the United States) and a country we can put our financial faith into, secondly each government needs to stop over spending, and lastly we need to help out the poorer nations.…
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G-10). Since the United States is in a period of recovery expansionary fiscal policy would be the most appropriate to continue to help the economy reach its optimum level of full-employment without causing inflation. The use of expansionary fiscal policy would put more money in the hands of consumers by increasing government spending and decreasing taxes. Increasing government spending in the form of subsidies and transfer payments allows consumers to have more money to spend on products. Cutting taxes is an important fiscal policy tool that works to also allow more money for consumers to spend. The tax cuts must be large enough and last long enough for people to feel comfortable in spending the extra money instead of saving…
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The Policy that the Fed will implement to close the recessionary gap is called the Expansionary Fiscal policy. The Federal bank in the United States has the power to both make the laws and pass them too. If the economy is operating at a capacity lower than its optimum output, there is a recessionary gap in the economy. Thus if the general level of employment in the economy is lower than its optimum level, the output generated will also be lower. The Fed can influence the supply of money in the economy which is instrumental in dealing with recession or inflation for that matter. To take care of this gap, the Fed has various means available on hand. The Fed can take any or all of the following actions to tackle the recessionary gap:…
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The American government manages the overall pace of economic activity and looks to sustain high employment levels and stability in prices. In order to achieve these goals the government uses Fiscal and Monetary policy. Fiscal policy is used to determine the appropriate level of spending and taxes, whereas monetary policy manages the supply of money in the economy. When the economy enters a recession, governments stimulate it with deficit spending, whereas during an economic growth governments control it with higher taxes to achieve a surplus. These policies are based on the concepts of British economist John Maynard Keynes (1883-1946). Consumers mainly influence fiscal policy by their spending habits. For instance, if they become concerned about the economy they will save more and spend less, which will result in less production, increase in unemployment level and an overall lower spending rate. In general, the power is held by the consumer. If we become more reasonable with our spending, saving and investing for the better, this would positively impact our economy. (Brooks)…
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‘Discuss the ways in which the government may use Fiscal policy to help the economy grow out of a recession. Reference must be made to some policies that the current government has actually use’…
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With the emergence of recent financial crisis, economies across the globe have been experiencing quite rough times and faced many difficulties, as well as downturns. Many countries faced the progressively increasing rate of unemployment, big declines in the share of the consumer’s wealth with a subsequent drop of the demand for goods and services. In an urgent necessity of improvement and recovery, governments were designing and implementing various combinations of fiscal and monetary policies, according to the situation on particular markets. Many of the Central Bank’s carried the expansionary policies (or so called quantitative easing) in order to speed up the revitalization of the financial market and speed up the economic growth. The quantitative easing is usually performed via one of the basic and very common monetary tool, - open market operations. In case of the expansionary monetary policy, it means that central banks e.g. Bank of England (UK) or The Federal Reserve (USA) are buying bonds and government securities with the purpose to increase the supply of money in the financial system and the economy. Such purchases of bonds are injecting money into the economy and stimulate its growth. However, as in any other economic tool there are cost and benefits for such policy. In further analysis there will be discussed and outlined the aspects of the purpose of the policy, efficiency dynamics and possible costs and risk of chosen economic policy.…
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Unemployment crisis: The demand for goods and services is needed to achieve the growth that will boost the economy and provide jobs.…
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Today, a global recession has become a biggest threat to world. Due to this global recession, it is a macroeconomics crisis. In last few years, unemployment has become a serious and top most problem in many part of the world. Also increased globalizations have put more employee job into risk. The under developing countries like India, china are facing their bad time. Emerging economies like China and India are affected by the negative influence of the US Subprime Market Crisis.…
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The effect of government expenditures, taxation, and debt on the aggregate economy is of immense importance, and therefore great controversy in economics (Modigliani, 1987). Many factors influence aggregate demand besides monetary and fiscal policy. According to Keynesianism, desired spending by households and firms determines the overall demand for goods and services. When desired spending changes, aggregate demand shifts. If policymakers do not respond, such shifts in aggregate demand cause short-run fluctuations in output and employment. As a result, monetary and fiscal policymakers sometimes use the policy levers at their disposal to try to offset these shifts in aggregate demand and thereby stabilize the economy (Sloman, 2005). When policymakers change the money supply or the level of taxes, they shift the aggregate-demand curve by influencing the spending decisions of firms or households. By contrast, when the government alters its own purchases of goods and services, it shifts the aggregate-demand curve directly. Suppose, for instance, that the…
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