Economic Policy and Practice

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Economic Policies And Practices
ECO2072 / Professor Gordon
4/5/2013
Assignment Due Date – 4/3/2013

Economic Policies And Practices
Understanding the foundation for which our economy and society as a whole is built upon, the need for a controlled and managed monetary system to function effectively in order to facilitate trade and stabilize the flow within our economy is a must. To facilitate this need the federal government implements tools for analyzing the economy in order to regulate and control, and decisions are made based on the inputs and observations made to stabilize and enable the money to grow and retract as required within our economic system. Again, based on the aforementioned, the phrase “money makes the world go around” therefore can be attributed to the controlled systems, policies and/or a networks of our federal government for which are governed to enhance and manage both the levels of and effects of our financial monetary system. As we proceed, we will attempt to explain various government policy changes or unplanned events which can and may occur, and the resulting economic events or activity that will be impacted within our economy and the effects it has upon and within our economy. Implemented Budget Plan Resulting In Increases In Debt And No Plan For Problems

As we look at our Federal Governments role in execution and control of our nation’s budget and the current budget deficit we can only pray that those in charge of the decisions utilize the tools available to them to manage and soften the blow to the economy as the deficit grows. Where in the case our government employs a budget plan over several fiscal years and results wherein our economy sustains significant increases in the nation’s debt and displays no signs of relief nor presents no plans to deal with the problems, several outcomes would be likely in the economy. Mankiw, 2009, Ch.32, P.706 describes one effect being where government spending exceeds government revenue thus representing negative public saving, therefore reducing national savings, thus reducing the supply of loanable funds, Increasing interest rates, and crowds out investment. Amadeo, 2013 shares additional effects of this scenario wherein the deficit adds to a country’s debt each year and as the debt increases and the interest on the debt must be paid, it increases spending while adding no benefit to the economy. If the interest payments continue to rise, it can begin to create a drag on the economy’s growth. Mankiw, 2009, Ch.32, P.706 states additional effects in that when budget deficits raise interest rates, both domestic as well as foreign behaviors cause U.S. net capital outflow to fall. Therefore, in an open economy, our government’s budget deficit raises the economy’s real interest rates, thus crowding out domestic investment, and causing the currency to appreciate, consequently pushing the trade balance toward deficit. Enactment Of New Tariffs And Quotas On All Imports

The economy uses a model of aggregate demand and aggregate supply as a means to analyze the economic fluctuations of supply and demand. This model depicts both the overall price levels in the economy and the overall quantity of goods and services produced in the economy. If in fact the Federal Government were to enact new tariffs and quotas on all imports, the economy would indeed experience effects from this activity. Mankiw, 2009, Ch.33, P.725-726 describes the model of aggregate demand and supply being what most economist use to explain short-run fluctuations in economic activity around the long-run trend. The aggregate demand curve displays the quantity of goods and services for which households, firms, the government, and customers abroad want to buy at each price level. The aggregate supply curve shows the quantity of goods and services that firms choose to produce and sell at each price level. The impact the economy would incur in the case of tariffs enacted being taxes imposed on...
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