Question

some examples of when the U.S. had to use the fiscal policy in the past to help stimulate the economy? Where can I find this information?

Answer 1

The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Both of these policies increase aggregate demand while contributing to deficits or drawing down of budget surpluses. They are typically employed during recessions or amid fears of one.

Classical macroeconomics considers fiscal policy to be an effective strategy for the government to counterbalance the natural depression in spending and economic activity that takes place during a recession. As business conditions deteriorate, consumers and businesses cut back on spending and investments.

The government attempts to bridge the reduction in demand by giving a windfall to citizens via a tax cut or an increase in government spending, which creates jobs and alleviates unemployment. An example of such an effort is the Economic Stimulus Act of 2008, in which the government attempted to boost the economy by sending taxpayers $600 or $1,200 depending on their marital status and number of dependents. The total cost was $152 billion. Tax cuts are favored by conservatives for effective expansionary fiscal policy, as they have less faith in the government and more faith in markets.

Liberals tend to be more confident in the ability of the government to spend judiciously and are more inclined towards government spending as a means of expansionary fiscal policy. An example of government spending as expansionary fiscal policy is the American Recovery and Reinvestment Act of 2009. This effort was taken on in the midst of the Great Recession and totaled $831 billion. Most of this spending targeted infrastructure, education and extension of unemployment benefits.

Expansionary fiscal policy is when the government expands the money supply in the economy. It uses budgetary tools to either increase spending or cut taxes. That provides consumers and businesses with more money to spend.

In the United States, Congress must write legislation to create these measures. The president influences the process, but Congress must author and pass the bills.

Congress has two types of spending. The first is through the annual discretionary spending bill process. The largest part of discretionary spending is the military budget.

Expansionary fiscal policy puts more money into consumers' hands to give them more purchasing power. It uses subsidies,  transfer payments including welfare programs, and income tax cuts. It reduces unemployment by contracting public works or hiring new government workers. All these measures increase demand. That spurs consumer spending, which drives almost 70 percent of the economy. The other three components of gross domestic product are government spending, net exports, and business investment.

Corporate tax cuts put more money into businesses' hands. They use it for new investment and employees. In that way, tax cuts create jobs. But if the company already has enough cash, it may use the cut to buy back stocks or purchase new companies.

The theory of supply-side economics recommends lowering corporate taxes instead of income taxes. That gives companies funds to hire more workers. It advocates lower capital gains taxes to increase business investment. But the the Laffer Curve states that this type of trickle- down economics only works if tax rates are already 50 percent or higher.