Supply and Demand Models
Current Fiscal Policy Recommendations
Clearly, the daunting task of reviving the U. S. economy is made even more challenging by the worrying level of unemployment, high interest rates, high expectations, and low consumer income. At the different levels of the U. S. Government, it is recognized that putting the economy back on a sustainable path to recovery will require significant fiscal policy actions. To this end, there are a number of fiscal policies that are currently being recommended especially by those in positions of leadership and authority. One notable example is the most common recommendation for the government to adopt an expansionary fiscal policy, which involves increased government spending and tax reduction. Tax reduction is a primary fiscal policy tool for reducing unemployment, increasing disposal income, and ultimately increasing consumption, aggregate demand, and government revenues. Increased government spending, especially on infrastructure, construction works, and other job creation initiatives can also reduce unemployment.
Another important recommendation is the recent recommendation by the Congressional Budget Office (CBO) for a budget deficit reduction (Elmendorf, n.d.). Essentially underpinning this recommendation are three major concerns. The first concern is about the magnitude of the proposed deficit reduction. The second concern relates to the timing of the proposed deficit reduction. The final concern relates to the composition of the proposed deficit reduction.
Effectiveness of the Fiscal Policy Recommendations
The extent to which each of the two fiscal policy recommendations affects the national economy would depend largely on the applicable model or economic theory. Thus, to understand how budget deficit reduction or increased government spending and tax reduction would impact of unemployment, interest rates, expectations, and consumer income, it is important to give a brief overview of the Keynesian model and the
Clearly, the daunting task of reviving the U. S. economy is made even more challenging by the worrying level of unemployment, high interest rates, high expectations, and low consumer income. At the different levels of the U. S. Government, it is recognized that putting the economy back on a sustainable path to recovery will require significant fiscal policy actions. To this end, there are a number of fiscal policies that are currently being recommended especially by those in positions of leadership and authority. One notable example is the most common recommendation for the government to adopt an expansionary fiscal policy, which involves increased government spending and tax reduction. Tax reduction is a primary fiscal policy tool for reducing unemployment, increasing disposal income, and ultimately increasing consumption, aggregate demand, and government revenues. Increased government spending, especially on infrastructure, construction works, and other job creation initiatives can also reduce unemployment.
Another important recommendation is the recent recommendation by the Congressional Budget Office (CBO) for a budget deficit reduction (Elmendorf, n.d.). Essentially underpinning this recommendation are three major concerns. The first concern is about the magnitude of the proposed deficit reduction. The second concern relates to the timing of the proposed deficit reduction. The final concern relates to the composition of the proposed deficit reduction.
Effectiveness of the Fiscal Policy Recommendations
The extent to which each of the two fiscal policy recommendations affects the national economy would depend largely on the applicable model or economic theory. Thus, to understand how budget deficit reduction or increased government spending and tax reduction would impact of unemployment, interest rates, expectations, and consumer income, it is important to give a brief overview of the Keynesian model and the