Question

a.) Please be sure to use the textbook (Macroeconomic) and any other websites to discuss Fiscal Policy. Include in your paper the importance and significance of the Council of Economic Advisors. This is to be different than your assignment submission regarding current issues of Fiscal Policy. You are not to simply cut and paste information from the CEA Website. In this look at Fiscal Policy, I would like you to demonstrate your understanding of how the study of Fiscal Policy and the role of the CEA that you have already reviewed, fits into the study of Macroeconomics. need help

Answer 1

The Employment Act of 1946 created the Council of Economic Advisers to provide the Chair with independent economic analysis and advice on the development and implementation of a broad range of domestic and international economic policy issues.

Although it has been the most enduring and important result of the Employment Act of 1946, the Council of Economic Advisers (CEA) was not the legislation’s major focus.

As World War II came to an end, many feared that the US would return to being a deprimed economy. Many felt the United States had the potential to avoid such an economic crisis by discretionary monetary policies but needed legislation to compel the federal government to encourage continued economic growth.

So Keynesian government economists persuaded their Congressional colleagues to pass the 1945 Full Employment Act. Since opponents thought the new law would result in higher inflation, the final law (1946 Employment Act) contained ambiguous "economic stability-consistent target production and employment" objectives.

Through Economic Advisers Council has emphasized the importance of taking policies to ensure a high rate of economic growth. CEAs have been advocates for promoting economic development as a national goal within administrations. CEAs have been most effective in fostering economic growth by actively implementing microeconomic policies to stimulate competition and improve the functioning of the markets.

Since they contend that free foreign trade boosts the economic development of a country, CEAs have sponsored presidential attempts to enact policies that would lead to more open trade between nations. Former CEA leaders have also recognized that much of their time and that of the workers has dealt with microeconomic policies, mostly to protest against misconceived ideas from parts of the congress.

Clinton’s CEA described well this function: “The Council’s mission within the Executive Office of the President is unique: it serves as a tenacious advocate for policies that facilitate the workings of the market and that emphasize the importance of incentives, efficiency, productivity, and long-term growth. …The Council has also been important in helping to weed out proposals that are ill-advised or unworkable, proposals that cannot be supported by the existing economic data, and proposals that could have damaging consequences for the economy”

While CEAs have provided similar advice on microeconomic and foreign trade policies in both Democratic and Republican administrations, they have not decided how to use fiscal policy to improve possible real production growth.

The 1946 employment Act concentrated on the implementation of discretionary monetary policies to avert another Great Depression. During recessions, CEAs also helped persuade administrations not to increase tax rates or slash government spending in an attempt to balance the budget.

This effort started early in the CEA’s history with the recessions of 1948-1949 and 1953-1954 because both Truman’s CEA and Eisenhower’s CEA accepted the idea that budgets should be balanced over the business cycle, rather than annually.

Over time, there has been a increasing awareness that the legislative cycle is that incentives for budgetary monetary measures to be introduced in due time. In addition, a long and volatile effectiveness (impact) lag combined with volatility in the magnitude of multipliers of fiscal policy further weaken the case for discretionary fiscal policy in minimizing cyclical fluctuations. CEAs, instead, are stressing  the importance of strengthening the automatic stabilizing aspects of the fiscal system.

The CEA have been most influential in affecting economic policy when its chair has been able to develop an excellent rapport with the President; examples include Walter Heller with President Kennedy and Alan Greenspan with President Ford.CEAs never clashed in public with the President or his team despite having lost several fights.