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Eco 203 Macroeconomics - Expansionary Economic Policy

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Expansionary economic policy

During the Great Depression, the United States suffered severe and lasting unemployment, along with falling prices and a sharp decline in real output. Because the unemployment level lasted so long, the Keynesians disagreed with the Classical theorist. The Classical economists argued that recessions would be temporary and self-correcting; therefore, the government should have a limited role in the money supply. Whereas, the Keynesians argued that during a time of long-term financial crises the government should intervene by injecting money into the market. Still many economists continue to debate about which economic policy to implement during a crisis in the financial market. Therefore, in an effort to move the economy out of a recession, the federal government engages in expansionary economic policies to alleviate the strain. A recession is a general slowdown in economic activity, during which the federal government will implement fiscal policies and the Federal Reserve Bank will implement monetary policies to stabilize the economy.

Indeed, policy measures implemented to increase Gross Domestic Product (hereinafter referred to as GDP), and economic growth are expansionary. When the federal government implements fiscal policy it is to stimulate growth and employment by changing tax rates, levels of transfer payments, or government purchases of goods and services in order to change the equilibrium level of national income (Amacher & Pate, 2012). During the recession of 2007 through 2009, President Barack Obama extended Bush’s acts of 2001 and 2003 that were both set to expire in 2010. In addition, by granting a two-year extension those acts resulted in a larger tax cut and economic package the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The federal government also arranged a $700 billion bank...

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