Question

Describe the roles of government bodies that determine fiscal policy. Explain fiscal policies’ effects on the economy’s production and employment. How does the enormous U.S. national debt affect the federal government’s fiscal policy? Is the current U.S. national debt a serious problem like a heavy personal debt? Why or why not? Discuss thoroughly.

Answer 1

Fiscal policy is related to the expenditure and taxes in economy. These all decisions concerning expenditure and taxes are taken by the government bodies. These decisions have profound impacts on economy.

Fiscal policy has direct impact on production and employment. Importance of fiscal policy increases during the economic recession. Recession period is characterised by the fall in the output level and employment opportunities. Thus, when government increases its public expenditure and reduces the taxes, these steps of government induce more demand and incentivise further rise in output and employment. Thus, economy is restored back to previous equilibrium,

US debt is close to 108 % of GDP or it is approximate to 20 Trillion dollar. Such huge debt magnitude could be matter of worry for US economy if it enters another recession. Since US economy is operating at full employment, so it must be reduced so that economic crisis can be handled easily and smoothly.

President Trump has reduced taxes, so debt might spike up further. it must be reduced. Time has come for US government to think profoundly about the level of debt. Foreign investment might be discouraged if government continues to add it debt level.