ECO 203 UArizona Global Campus Fiscal Policy Discussion and Responses

Description

Prior to the work on this discussion, please read chapters 9 and 10 in the course text and Fiscal Policy: Taking and Giving Away . 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.
 Respond to at least two of your classmates’ posts.

classmates response: The government uses fiscal policy to influence the economy by altering revenue and spending levels. In the United States, fiscal policy is determined by the executive and legislative branches of government. Fiscal policy is founded on the views of British economist John Maynard Keynes, who stated that changing the amounts of revenue (taxes) and expenditure (spending) affects inflation, employment, and the flow of money through the economic system. Fiscal policy is frequently used with monetary policy, controlled by the Federal Reserve in the United States, to influence the economy’s direction and fulfill economic goals.
The success of an economy is often assessed by several measures, one of which is gross domestic product (GDP), which is the total value of goods and services generated by a country each year. Another component is aggregate demand, the sum of a country’s products and services purchased at a specific price point. The aggregate demand curve states that more goods and services are demanded at lower prices while less demand exists at higher prices.
High debt levels also limit our government’s ability to respond to future catastrophes, unexpected problems, conflicts, or recessions. The United States recovered from the Great Recession faster than others because our debt was relatively modest when the financial crisis occurred, at 35 percent of GDP. As a result, policymakers in the United States had much leeway in dealing with the problem. It would have been harder to respond if the debt had been substantially higher at the onset of the crisis, as it is now.
The United States pays interest on its debt, and those payments rise as the debt grows, even if interest rates remain stable. According to the Congressional Budget Office, the United States will spend more on interest than agriculture, veterans’ benefits, or Medicaid. This is a severe issue, in my opinion.
Reference:
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.). Bridgepoint Education
classmates response 2: Fiscal policy consists of changes in government expenditures or taxes to influence an economies level of economic activity, inflation, and economic growth. Due to households and businesses only acting primarily in self-interest, fluctuations in the economy become more severe. For example, in a recession households save, and businesses invest less. The foreign sector follows a similar path. Therefore, it is up to the government to act in the interest of everyone and provide stabilization.
So how do governments use fiscal policy to do this? The main ways are to use government spending and taxes to target aggregate demand. To do this, policyholders must identify a target level of national income, creating an equilibrium that generates full employment with price stability. This can be either expansionary or contractionary depending on the state of the current economy.
Before Keynesian economics, there was a budget that was required to be balanced every year. Congress would collect taxes to pay for spending programs and in turn restrict the growth of government, not allowing any form of fiscal policy. The near tripling of the national debt in the 1980’s was due to a severe reduction in taxes. This combined with the spending on defense led to a huge national debt that has only continued to grow.
The enormous national debt has resulted in multiple attempts to reduce it by either reducing the amount of spending or increasing taxes to pay it off. Unfortunately, events such as the financial crises, recessions, and wars have led to even more spending, further increasing the debt.
But does the massive debt really matter? Maybe not to most people going about their everyday lives such as you and me, but there are affects that the large debt can have. Unrestrained public sector growth, higher interest rates and payments, and a higher trade deficit are just a few of these concerns. However, trying to fix these all at once may hinder economic growth. I am not sure if there is a perfect solution to fix the national debt, but I am also not sure if one is needed either.

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