Question

Is a recessionary or inflationary gap bad for an economy? Have you ever wondered how the federal government and the Federal Reserve react to smooth out recessionary and inflationary gaps? In this activity, you will explore the concepts of fiscal policy and the attempts the U.S. government takes when the U.S. economy is in a recessionary or inflation gap. You will discuss the concepts of aggregate supply and aggregate demand to determine how the U.S. economy can work its way back to long-run equilibrium based.

Locate a recent article (published within the last year) that discusses fiscal policy and whether the U.S. economy is in an inflationary or recessionary gap. You can use the Hunt Library, newspapers, new stations, or other credible sources to locate an article. Analyze the article and then address the following concepts in your discussion.

• Interpret recessionary and expansionary gaps within the economy.
• Explain the inter-workings of fiscal policy tools.
• State how taxation and government spending works.
• Differentiate between fiscal and monetary policy.
• Demonstrate the mechanics of discretionary fiscal policy within the Keynesian framework.

Summarize your findings using at least 250 words and provide a minimum of one reference. Use current APA formatting to document your sources.

Answer 1

FIRST QUESTION-

INFLATIONARY/EXPANSIONARY GAP-inflationary gap is a situation where AD>AS and there is over full employment of the labor is employed and over-utilization of resources are persisted.in this situation the inflation is quite high in the economy and people demand for good and service and the price high in the economy comparatively.

DEFLATIONARY/RECESSIONARY GAP-when there is a situation where AS>AD this means there is a lack of demand and as a result there would be unemployment in the economy and due to lack of demand ,low level of production would be there and economy would be at a recession.

SECOND QUESTION-

INTER WORKING OF FISCAL POLICY TOOL-

fiscal policy is very helpful for the stabilizing the economy

• if there is inflation in the economy then government can increase the tax rate,decrease the spending of public expenditure and as a result there would be a decline in the over full employment level and economy would be stabilize.
• if there is recession in the economy government would decrease the tax rate to increase the net income of the producer and it will increase its public spending in the economy and as a result the income of the person in the entire economy would increase.

THIRD QUESTION-

TAXATION AND GOVERNMENT POLICY -

tax is the one of the most effective tool in the stabilizing economic process.

• if government wants to control inflation there is a need to decrease the net disposable income of the firm' s owner and individual then it would increase the tax rate.
• if government wants to come out from recession then there is a need to increase the net disposable income of the firm' s owner and individual then it would decrease the tax rate.

FOURTH QUESTION-

DIFFERENCE BETWEEN MONETARY AND FISCAL POLICY-

• monetary policy is concerned with and is the tool of central bank.it takes decision concerned with the demand and supply of money circulation in the economy.repo rate,bank rate,open market operations are the basic tools which comes under the monetary policy
• fiscal policy is concerned with the government spending policy.public spending,taxation policy are the main tools which come under the fiscal policy in the economy.

FIFTH QUESTION-

J.M Keynes presented the view that to make economy stable the most important role is played by the government in the economy.keynesian prescribed that government can control the economy through the public spending in the economy.he considered the public spending in the economy a very important concept in the economy.

• in a recent article published in Bloomberg ,it was published that US economy is heading towards recession with too much fluctuation in the economy.
• this was due to the pandemic caused by COVID-19 and it slow down the growth of the economy all around the world.
• US economy have too take both short run steps and long run steps to attain the previous level growth.US have to create the demand by providing various incentive to the designated sectors so they can create demand and also supply.it may take some times but great efforts are needed.