Assume that the economy is already in a recession, and both the President and Congress have decided to do something to restore the economy. Both agree that lowering taxes would not be a good idea, but do believe that it is in the best interest of the economy to increase government spending in defense, education & infrastructure.
The President and Congress change the budget accordingly, but after 18 months, GDP only increased by three quarters of the expected amount. What factors might be responsible for this situation?
Write a paper answering the above questions.
Objective: Identify current trends in macro and microeconomics.
Analyze the relationship between fiscal and monetary policy in an open economy.
Critically analyze the role of government in a market economy.
Use effective communication techniques.
State the tools of fiscal policy .and how they are used to reduce inflation or eliminate a recession. The tools are used to establish the Federal Budget on the federal level. .There are limitations to using fiscal policy. Chapter 10 provides a discussion on the limitations of fiscal policy, Each tool has effects on the performance of the economy Any tool could have a negative feedback The textbook states several issues concerning government policy.
1) the role of fiscal policy is stabilizing the economy "Should the FED focus on only inflation", page 367-368
2) Should we balance the Federal Budget? See pages 361-360-362.
3) Do (government) deficits lead to inflation? Page 362-363.
4) Limits to Stabilization Policy, pages 214-216. State the reasons that policy did have the intended effects.