Question

Fiscal Policy Response:

Student must recommend the Federal Government use Expansionary Mode of Fiscal Policy to deal with the Recession. The student must recommend several specific items for the government to increase its spending in order to inject money into markets and get businesses spending money, as well as putting labor back to work to put money in their pockets to spend as well. Additionally, student must recommend the government LOWER PERSONAL AND BUSINESS INCOME TAXES. This will make both Consumer and Gross Private Domestic Investment Spending INCREASE. As three parts of total spending increase, AD shifts to the right, real GDP increases, which causes unemployment to decrease. If these work as stated, the economy will move into recovery in the business cycle.

Answer 1

Expansionary Fiscal Policies & Economy

Government’s fiscal policies have much to do with expanding an economy suffering from recession. Monetary policy along cannot retain the performance and the growth which the economy was enjoying before. Fiscal policies may have direct effect to labors and employees than monetary policies which are more in favor of the firms. Direct fund transfers and allocating funds through various fiscal expansions can increase the demand from the baseline of the economy. Providing direct incentives to the firms through allocating funds for labor welfare and reduction in personal and business taxes could help firms and also labors through increase in the revenue due to reduction in taxes. Government can issue further advices to the firms to provide necessary incentives to labors by giving firms the necessary support. The availability of money due to monetary policies cannot encourage the firms to invest and produce more. Fiscal policies should directly help the labors to increase the demand for commodities through proper intervention of government. The baseline of the demand structure should be capable of demanding and consuming more. Reducing the risk of borrowing money and providing direct benefits rather than supplying more money can stimulate the demand for commodities in the economy and thus increasing the ability to produce attaining economic growth. Labors and farmers should be provided with government backing funds. More than giving risk of further borrowings, direct transfer of benefits and money could help the economy to survive the recession.