Macroeconomic Debates

Macroeconomic Debates

The debate concerning whether the government should fight recessions using spending hikes instead of tax cuts is selected from the six arguments offered for discussion. The topic is of relevance to me, considering the influence it has had on my opinion regarding the use of tax cuts. Further, the case is relevant to me because I am a part of the economy in which the tax cuts and spending hikes are implemented, and the policy changes on these notable aspects affect my economic welfare significantly. According to Nakamura & Steinsson (2018), a significant cause of economic downfall during a downturn is businesses that cannot sell their products. As a result, production reduces, and firms lay off workers in response. The unemployment rate is increasing, and the government is taking various measures to correct the situation. For instance, the government can decide to raise the money supply in the economy through reduced interest rates, which will allow firms to afford money to expand their production activities and reverse the rate of unemployment.

This approach is considered a better option than resolving to cut taxes. In support of this argument, cutting taxes can influence the overall demand for products and services. However, as much as this is the desired goal, the fact that the aggregate supply is likely to increase when demand increases means it is possible to have zero net upward pressure on the inflation rate (Mankiw, 2021). Thus, tax cuts are not prudent because they can fail to achieve the desired goal. Notably, this is not the case when spending hikes are adopted as an economic policy because their effect is more given. Interestingly, this discussion is relevant to me because it has influenced my perception of considering tax cuts as a better measure to improve the economic status of citizens in a given country. Further, it helps me understand the importance of comparing the two sides in terms of benefits before selecting an option.

References

Mankiw, N. G. (2021). Principles of Economics (9^th ed.). Boston, MA: Cengage Learning

Nakamura, E., & Steinsson, J. (2018). Identification in macroeconomics. Journal of Economic Perspectives, 32(3), 59-86.

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Throughout this course, you have learned about economic models and principles and how they apply to the macroeconomic issues a country faces. Take this time to share what you have learned.

Macroeconomic Debates

In your initial post, choose one of the six debates of macroeconomic policy discussed in the textbook. Explain why this macroeconomic issue is relevant to you. Support your choice with economic concepts you have learned during the course.

For your response posts, comment on the macroeconomic debates your peers chose. Provide examples from current economic news about the macroeconomic policy debate and comment on the nature and tenor of the discourse surrounding the different arguments.