Question

We are discusses the many aspects of the role of the government in our economy. The last few months have shown that the government can have a tremendous impact on our economy. Just think of those stimulus checks, or the extended unemployment benefits some people have received. On the other hand, did the government do enough during the Covid 19 pandemic--or did they not do enough? Since this year is a presidential election year, and you are, or should be, a registered voter, it is important for you to determine your stance on government involvement in our economy and our world." Does our government do enough, or too much? Are you willing to pay more in taxes for more benefits? What is your personal equilibrium point for your comfort level? What do you foresee our government and our economy looking like in the next four years?

Answer 1

USA has decided to put money around $3 trillion to help economy recover from COVID-19 crisis. Loss of confidence in people, investors shifts aggregate demand to left and creates arecessionary gap. USA economy was recovering from 2008 subprime crsis and was showing signs of healthy growth rates. This pandemic has reduced demand worldwide and major economies in Europe, India and China are leading to recessions.See figure below: AD1 shifts to AD2 and recessionary gap between Y1 and Y2 is created.

Keynes had believed that during these gaps, governmnt has to intervene and help Y2 shift back to Y1. This can be done by expansionary fiscal policy. This policy uses two tools -reducing taxes and increasing government spending.Hence government aiming to put 10 % of USA GDP currently.

Development and economic growth are continuous process and hence there is never enough which is done for an economy. However, This stimulus is very high indeed. Depending on implementation results will be there.

It is really important to understand what government is doing as government has major tools to fight with this crisis. Investor andconsumer confidence is boosted by these efforts thet helps economy to come out of recession.

I am not ready to pay higher taxes now as I am not confident of my future income and will like to keep money saved.

I see that four years growth rate would be low around 1.5% to 2% as world is fighting with this pandemic and lost major production and consumption. Government debt will increase manyfold all over the world.

fig: