Fiscal Policy

The legislative actions that a government takes to regulate its economy while diminishing poverty and attaining growth are known as fiscal policy, which can be accomplished through taxation and spending. Contractionary and expansionary fiscal policy are two types of policy that can be used depending on the intent (O’Connell, 2021). Using an expansionary fiscal policy allows for economic growth to help recover or expand after a financial crash (O’Connell, 2021). A recent example of this was the COVID-19, where the government must stimulate the economy by spending on the distribution of stimulus checks. Another example is to increase purchasing power by lowering taxes. A contractionary fiscal policy helps stabilize periods of rapid growth that could threaten the steady growth rate of the economy (O’Connell, 2021). Although rapid economic growth does not sound like a problem, too much growth can lead to asset bubbles, runaway inflation, and low levels of unemployment (O’Connell, 2021). The supply-side increases the labor, which is accomplished by the decrease in tax rates, resource supplies, and increases in the aggregate supply (Gwartney et al., 2018). Combining contractionary and expansionary fiscal policies could lead to a recession or economic collapse.

An example of a fiscal policy was handling the COVID-19 pandemic, which led the global economy into the worst recession since World War II (UPtoUS, 2020). The U.S. adopted/implemented an expansionary policy, making aggressive legislative actions to boost the economy to prevent furthering the recession or the economy from going into a depression (UPtoUS). Some actions included forgivable loans to small businesses, direct payments to consumers, and increased benefits for unemployed workers. Through the CARES Act, unemployment insurance was provided and funded the Federal Pandemic Unemployment Compensation benefit that provided $600 supplement checks weekly for the unemployed who were collecting unemployment benefits (The Investopedia Team, 2021). This benefit caused a shortage in the workforce as many Americans were making more from unemployment than from their regular salaries. The Federal Pandemic Unemployment Compensation (FPUC) only had a short-term impact on the economy regarding consumer spending.

References

Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from https://www.cengage.com

O’Connell, B. (2021, May 28). What is fiscal policy? Forbes. https://www.forbes.com/advisor/investing/what-is-fiscal-policy/ (Links to an external site.).

The Investopedia Team. (2021, October 31). Coronavirus aid, relief, and economic security (CARES) act. Investopedia. https://www.investopedia.com/coronavirus-aid-relief-and- economic-security-cares-act-4800707

U.S. fiscal policy: An introduction to our fiscal policy | 2020. (2020, November 6). UPtoUS. https://www.itsuptous.org/US-fiscal-policy

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Prior to beginning work on this discussion, Read Chapters 9, 11 and 12 of Macroeconomics: Private and Public Choice. There are two parts to this discussion.

Fiscal Policy

Part 1

In your own words define and explain fiscal policy. List the pros and cons for the fiscal policy you selected. Include supply-side economics in your explanation. As you think through your answer, remember the government may exercise expansionary or restrictive fiscal policy.

Part 2

Research one specific real-life example of a fiscal policy and explain its overall impact on the economy. In your example, discuss any political influences.

Note: when possible, select a different example than those already posted by a fellow classmate.

Your initial response should be a minimum of 200 words. Graduate school students learn to assess the perspectives of several scholars. Support your response with at least two scholarly and/or credible resources in addition to the text.