Fiscal policy refers to the legislative measures that a government adopts to control its economy, reduce poverty, and achieve growth. This is done through taxing and spending. Depending on the goal, either contractionary or expansionary fiscal policy may be employed (O’Connell, 2021). After a financial crash, economic growth can aid in recovery or expansion by using an expansionary fiscal policy (O’Connell, 2021). COVID-19, a recent instance, requires the government to spend money on the distribution of stimulus checks to stimulate the economy. Another illustration is raising purchasing power by reducing taxes. To prevent times of high expansion from endangering the economy’s steady rate of growth, a contractionary fiscal policy is used (O’Connell, 2021). However, it may not seem like an issue, but excessive economic growth can result in asset bubbles, runaway inflation, and low unemployment rates (O’Connell, 2021). By lowering tax rates, increasing resource supplies, and increasing the overall supply, the supply side raises labor (Gwartney et al., 2018). Mixing fiscal policies that are expansionary and restrictive could cause an economic downturn or collapse.
Handling the COVID-19 pandemic, which caused the world economy to enter the greatest recession since World War II, illustrates fiscal policy (UPtoUS, 2020). The United States adopted/implemented an expansionary strategy, taking bold legislative measures to stimulate the economy to stop the recession from deepening or the economy from depressing (UPtoUS). Some of the acts were direct payments to consumers, the forgiveness of small business loans, and higher unemployment compensation. The Federal Pandemic Unemployment Compensation benefit, which offered $600 supplement checks weekly for the unemployed who were receiving unemployment benefits, was funded by unemployment insurance and provided through the CARES Act (The Investopedia Team, 2021). Because many Americans were earning more money from unemployment than from their normal salary, this benefit led to a labor shortage. Only temporarily did the Federal Pandemic Unemployment Compensation (FPUC) affect consumer spending in the economy.
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.
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.
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.
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