Premium Essay

Eco 203 Macroeconomics - Expansionary Economic Policy

In: Business and Management

Submitted By asugdj
Words 2377
Pages 10
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…...

Similar Documents

Premium Essay

Economic Policy

...Economic policy refers to the actions that governments take in the economic field. It covers the systems for setting interest rates and government budget as well as the labor market, national ownership, and many other areas of government interventions into the economy. Nature of Economic Policy The ideal economic policy, both for today and tomorrow, is very simple. Government should protect and defend against domestic and foreign aggression the lives and property of the persons under its jurisdiction, settle disputes that arise, and leave the people otherwise free to pursue their various goals and ends in life. This is a radical idea in our interventionist age. Governments today are often asked to lower the prices of others, to fix wages, to help some businesses get started and to keep others from failing, to encourage or hamper imports and exports, to take care for the sick and elderly, to support the profligate, and so on. Ideally government should be a sort of caretaker, not of the people themselves, but of the conditions which will allow individuals, producers, traders, workers, entrepreneurs, savers, and consumers to pursue their own goals in peace. If government does that, and no more, the people will be able to provide for themselves much better that the government possibly could. Concepts of Economic Policy: * Economic policy seeks to achieve objectives such a high rate of growth, a low and stable rate of inflation and high levels of employment *......

Words: 1263 - Pages: 6

Premium Essay

Expansionary Policy

...Expansionary Fiscal and Monetary Policies Macroeconomics: ECO 203 Professor Charles Aki September 1, 2013 The US economy has seen some detrimental changes over the past decade. These changes resulted in unsubstantial unemployment rates, fluctuating interest rates, unstable GDP, and an increase in taxes. The federal government has an obligation to citizens to respond to the changes in the economy that affect each household. Expansionary Fiscal and Monetary Policies are economic policies used by the government to level out the extreme swings in our economy. The development state of US economy has forced the Federal Government to implement changes using their authority in Expansionary Fiscal and Monetary Policies in order to stabilize the economy. President Bush and President Obama Administrations created and implemented a stimulus package in direct response to the 2008 economic crisis. Government expansion is necessary for economic growth. The government should provide a stable environment for economic growth and maintain the stability of currency, enforce and defend property rights and provide the assurance that private citizens and market place transactions are accountable. This is how resources are cycled into our economy. (Amacher;Pate, 2012) Without government spending, the government would not be able to carry out its duties to the US citizens. Government borrowing and spending stimulates the economy and is risky because it cannot be implemented at any time......

Words: 1261 - Pages: 6

Premium Essay

Economics 203

...and monetary policies, implemented by our government. According to the Federal Reserve, “Fiscal policy is a broad term used to refer to the tax and spending policies of the federal government” ( n.d.). Decisions regarding fiscal policy are determined by Congress and the presidential administration. “Monetary policy is a term used to refer to the actions of central banks to achieve macroeconomic policy objectives such as price stability, full employment, and stable economic growth” ( n.d.). Fiscal policy uses changes in government expenditures or taxes to influence inflation, economic activity and growth. Keynesian economists, who agree with the opinions of ____ Keynes, argue that government influence is the only way to reach economic stability. Their belief is that the government is the only ones who must act in the best interest of society. To do this, they must use their taxing and spending powers to offset changes in private demand. This belief is backed by the fact that households will save more during hard times and recessions because they cannot be sure of their employment and income situations in the future. Similar reasons can be given for why businesses invest less in these times. For these reasons, households and businesses are unreliable for solely pushing the economy out of a recession; a stronger force is needed, which is the federal government. As with most goals, a target must be set for fiscal policy to be......

Words: 596 - Pages: 3

Premium Essay

Macro Economic Policies

...Problem: Decrease unemployment Fiscal and Monetary/ Short Run Policies (Demand-side policies): There is a range of policy measures a government may use to reduce unemployment, however, the choice of measures are influenced by the cause of the unemployment, the rate and duration of unemployment and the state of the other macroeconomics objectives. If the economy is below its productive capacity, unemployment may be reduced by increasing AD. Expansionary fiscal and/ or monetary policy can be used to create jobs. Fiscal policy: increase government spending and/or cut taxes in order to rise AD. Rise in government spending has the potential to have more of an impact on AD than cuts in tax. With an increase in AD, there will be an increase in Real GDP (as long as there is spare capacity in the economy.) If firms produce more, there will be an increase in demand for workers and therefore lower demand-deficient unemployment. Also, with higher aggregate demand and strong economic growth, fewer firms will go bankrupt meaning fewer job losses. Monetary policy: Monetary policy would involve cutting interest rates. Lower rates decrease the cost of borrowing and encourage people to spend and invest. This increases AD and should also help to increase GDP and reduce demand deficient unemployment. Also lower interest rates will reduce exchange rate and make exports more competitive. Supply-side Policies/ Long Run Policies: Education and Training, Reduce Power of trades unions,......

Words: 1039 - Pages: 5

Premium Essay

Fiscal Policy & Macroeconomic Models

...FISCAL POLICY & MACROECONOMIC MODELS There are three macroeconomic models in which to analyze the effects of changes in fiscal policy: Keynesian, Monetarist and Classical. Keynesian Model The Keynesian model focuses on attempting to manage the “Demand” side of the economy by using taxation and spending to redistribute income and wealth. The rationale is that redistribution of income and wealth via taxation and use of transfer payments [government spending] will drive the “Demand” function thereby driving the overall economy. The Keynesian model makes no distinction between tax rates and tax revenues and assumes that government spending in the form of transfer payments will increase or decrease demand based on the level of spending AND the spending multiplier. The spending multiplier can be expressed mathematically as: Spending Multiplier = 1 / (1 – MPC) in which MPC is the “marginal propensity to consume.” Keynesian economics is based on the view that lower income brackets have higher MPC, while higher income earners have lower MPC. Accordingly, the transfer of income and wealth to lower income earners will transfer into increased economic growth because every dollar of transfer payments in theory will have a higher multiplier effect. The increase or decrease of “taxes-and-spending” should accelerate [or decelerate] economic growth depending on how it is applied. Observations: Keynesian economics ignores or does not take into account that changes in tax......

Words: 1031 - Pages: 5

Premium Essay

Expansionary Economic Policy

...Expansionary Economic Policy Laura Jackson Eco 203 Nicholas Bergan April 7, 2014 Expansionary Economic Policy Recent economic events have led to a need for the American people to call on their government to utilize their legislative power by implementing expansionary economic policies in an effort to stabilize the fluctuating economy. More specifically, the government has used expansionary fiscal and monetary policies to do so. Such fiscal policies used affected the taxes and government sending both positively and negatively as well as aggregate demand, GDP, and employment, while the monetary policies applied have adjusted the required reserve ratio and discount rates and have resulted in the purchasing and selling of government securities. In a developed country such as ours, fiscal policy is an important tool used to steady the economy. In terms of using this tool as an aid to expansion, necessary adjustments in taxes and government spending are required, resulting in changes in aggregate demand, GDP, and employment. “Fiscal policy is an important tool for managing the economy by having the ability to affect the total amount of output produced,” aggregate demand, and employment (Buena-Bontas & Petre , 2009). How is this done? These changes are made through adjustments in taxes and government spending. In most cases adjustments in tax rates and government spending work concurrently. During a time of high deficit and debt, it is in the government’s best......

Words: 1711 - Pages: 7

Premium Essay

Eco 372 Fundamentals of Macroeconomics

...Fundamentals of Macroeconomics Kevin Conrad ECO 372 Paul Updike May 5, 2014 Part 1 • Gross domestic product (GDP) – The total market value of all the products and services a country provides or consumes over the course of one year. • Real GDP - The total market value of all the products and services a country provides or consumes over the course of one year based on prices of a given year. • Nominal GDP - The total market value of all the products and services a country provides or consumes calculated with existing prices. • Unemployment rate – This is the number of people in a country or economy who are able to work but have been laid off from their jobs. Many of these people are more than willing to work but sometimes have a hard time finding a job. • Inflation rate – The rate at which the prices of services and products continuously rise, inflation causes the prices for products to rise. It makes everything more expensive than a month ago or days ago even depending on how fast the inflation rate is moving over the course of time. • Interest rate – The fee paid when borrowing money from a financial institution for buying a car, house, etc. The financial institution charges this rate so that they make a profit on   the money that you are borrowing from them. This rate can be higher or lower depending on your credit score. People with excellent or good credit will get a lower interest rate than people with bad credit scores. Part 2 The U.S. economy is......

Words: 802 - Pages: 4

Premium Essay

Expansionary Economic Policy

...Expansionary Economic Policy Clinton Dullin Eco203: Principles of Macroeconomics Evelyn Carlson 9/1/02014 The government in times of economic recession has responsibility to take action, engaging in expansionary economic policies is the action my paper will discuss. The types of economic expansion include Fiscal Policy, and Monetary Policy, the expansion of the two policies allows the government to adjust taxes, and government spending. Harry Truman once quoted “It’s a recession when your neighbor loses his job: it’s a depression when you lose yours.” (The economy perspective, the banker's banker. (1998, Jul 29). When recession hits the first party that is blamed is the government, so there ability to take action is a sign of them taking responsibility. Government action is necessary to right the recession ship, expanding Fiscal, and Monetary Policy may very well be the answer. The first topic of discussion is Expansionary Fiscal Policy and how the government uses the policy to affect the economy. Expansionary Fiscal Policy is a type of policy which includes increase in government purchases, a supple decline in taxes, while making an increase in transfer payments. These changes are designed to close the recessionary gap, while increasing economic stimulus packages and they aim to decrease unemployment. The government will introduce Expansionary Fiscal Policy during anticipation of contractions in the business-cycle. Increase in government spending will......

Words: 1852 - Pages: 8

Premium Essay

Eco 203 Final Paper

...This paperwork of ECO 203 Final Paper includes: Expansionary Economic Policy In an effort to move the economy out of a recession, the federal government would engage in expansionary economic policies. Describe the actions the government would take in conducting expansionary fiscal policy and expansionary monetary policy. Final Paper Expansionary Monetary Policy: Review Chapter 12: Banking and The Federal Reserve System and Chapter 14: Monetary Policy In Theory And Practice. Identify the three tools available to the Federal Reserve Bank (The Fed) when conducting monetary policy. Explain whether the Fed would: Increase or decrease the required reserve ratio Increase or decrease the discount rate Buy or sell government securities when conducting expansionary monetary policy. Explain how these actions would affect the money supply, interest rates, spending, aggregate demand, GDP, and employment. Writing the Final Paper The Final Paper: 1. Must be 5 to 6 double-spaced pages in length and formatted according to APA style as outlined in your approved style guide. 2. Must have a cover page that includes: a. Title of paper b. Student’s name c. Course name and number d. Instructor’s name c. Date submitted 3. Must include an introductory paragraph with a succinct thesis statement. 4. Must address the topic of the paper with critical thought. 5. Must conclude with a restatement of the thesis and a......

Words: 354 - Pages: 2

Premium Essay

Fundamentals of Macroeconomics Eco/372

...Fundamentals of Macroeconomics Martin Castro Principles of Macroeconomics ECO/ 372 01-28-2015 Antonio Billett The Fundamentals of Economic Activities The purchase of groceries is the product that have the most effectiveness economic quantity in order for establishing a total amount of a market value and all its goods and services that are inputted on a yearly time frame. These are all the products and services boundaries that involve government and public conservation. The GDP evaluates the average sustainability of living. All reported transactions that are not included on account of the government would pressurize the GDP and give low precise to the community. There are numerous of ways as well as activities that could have an effect on businesses, households, and the government. The primary event that would come to mind would be grocery shopping. There are many brands that have the same ingredients and pricing that have a wide range. That is the primary significance in a consumer's view; we make every effort to get the most of our money. We work hard to earn our funding, why just give it away like nothing? Look at the pricing quality or the weight; these details play a big part when pricing is in place. Organizations strive on having aggressive pricing when good and services increase. That puts them on having fewer economic opportunities for employment, in which decreases staff and increase unemployment. When the cost increases, consumers buy less, which is less......

Words: 721 - Pages: 3

Free Essay

Eco 203 Week 3 Quiz

...ECO 203 WEEK 3 QUIZ To purchase this visit following link: Contact us at: SUPPORT@ACTIVITYMODE.COM ECO 203 WEEK 3 QUIZ ECO 203 Week 3 Quiz 1. Question : The time between the legislation of fiscal policy and its effect on output and employment is called 2. Question : The federal income tax is 3. Question : The largest single item in the federal budget is 4. Question : The Investment Tax Credit 5. Question : The measured deficit would be larger if 6. Question : Opponents of discretionary fiscal policy believe that it 7. Question : Keynes blamed economic downturns primarily on 8. Question : Keynes argued that planned saving was 9. Question : A structural deficit 10. Question : When aggregate planned expenditure falls short of potential output, the economy experience Course Home Work aims to provide quality study notes and tutorials to the students of ECO 203 Week 3 Quiz in order to ace their studies. ECO 203 WEEK 3 QUIZ To purchase this visit following link: Contact us at: SUPPORT@ACTIVITYMODE.COM ECO 203 WEEK 3 QUIZ ECO 203 Week 3 Quiz 1. Question : The time between the legislation of fiscal policy and its effect on output and employment is called 2. Question : The federal income tax is 3. Question : The largest single item in the federal budget......

Words: 801 - Pages: 4

Premium Essay

Eco 203 Learning Consultant / Tutorialrank.Com

...ASHFORD ECO 203 Week 1 DQ 1 Opportunity Costs (Old) For more course tutorials visit Opportunity Costs One of the scarce resources that constrain our behavior is time. Each of us has only 24 hours in a day. How do you go about allocating your time in a given day among competing alternatives? How do you go about weighing the alternatives? How can you apply the concepts of opportunity cost to your decision to attend Ashford? Use the notion of opportunity cost in your answer. Respond to at least two of your classmates’ postings -------------------------------------------------------- ASHFORD ECO 203 Week 1 DQ 2 NYC Rent (Old) For more course tutorials visit NYC Rent The rent for apartments in New York City has been rising sharply. Demand for apartments in New York City has been rising sharply as well. This is hard to explain because the law of demand says that higher prices should lead to lower demand. Do you agree or disagree? How is this going to affect prices in the market for New York City? Make sure to provide appropriate economic terms in your answers. Respond to at least two of your classmates’ postings -------------------------------------------------------- ASHFORD ECO 203 Week 2 DQ 1 The Local Job Force (Old) For more course tutorials visit The Local Job Force Visit the Bureau of Labor Statistics and click on the links for state employment and unemployment. Look at your home......

Words: 531 - Pages: 3

Premium Essay

Current Economic Conditions and Macroeconomic Policy in China

...Today , the macroeconomic conditions of our country is not so serious . After 30 years’ reform, our country has already started to build up some policy in order to control economical system .At present ,financial crisis is becoming a heated issue. Under suchconditions , it is important to figure out what can be done by our country onfiscal policy and monetary policy to achievement objective of the economy. Internal economy  excessive reliance on foreign markets Poor countries are better off pursuing outward-oriented policies. But our country depends on foreign markets too much. We have been emphasized” pull domestic consumption” for about ten years but cannot make a breakthrough all the time, and domestic consumption rate is not rising but falling constantly.  Inflation cannot be stopped in a short time Inflation’s occurrence and development is always lag behind an overheated economy about several quarters. At present , China’s e conomic growth rate slow down slightly.But the inflation pressure will remain in the next period of time.International oil, food prices’ increasing leads to the rising of the cost of production in China .The government should reasonably use the three monetary policy to control this .  Lacking of core technology and independent innovation industry policy should be strengthen roundly,it seems a historical......

Words: 339 - Pages: 2

Premium Essay

Economic Policy

...can u name? Lack of capital, physical capital(buildings, machines etc.), human capital and entrepreneurship 2. What causes of richness can u name? Over-population, poor nations-lack of natural resources, prosperity requires liberty 3. Name 2 kinds of economic planning  Mandatory – setting quotas and mandatories for goods  Indicative – encouraging production of some branch by subsides, grants and taxes 4. Name at least 3 economic systems Socialism (planned and collective), capitalism (individualistic and competetive), mixed (planned and individualistic – war capitalism, collective and planed – market socialism eg. China) 5. Name basic institutions of effective capitalism Provate property rights, market system, no corruption, monetary stability, openess of economy 6. Name basic recommendations or elements of merchantilism Encouraging agriculture, ecenomic wealth can be measured by precious metal (silver/gold); export over import, merchant fleet as vital importance, government involved in economy 7. Key elements of national competetiveness Basic institutions, infrastructure, stability 8. Name main elements of firm competetiveness Demand and supply, financal performance, investment ratio 9. When Keynesian policies to fight recession can not be applied? When there is a budget deficyt, high public debt, recession, no possibility to borrow money 10. How many arguments in favour of protection of infant industries can u name? Further development of this......

Words: 1678 - Pages: 7

Premium Essay

Economic Policy

...EC3010 - Economic Policy Assignment 1 The nature of the ongoing financial crisis merely confirms what Economists have known for some time, namely, that the interconnectedness of global economic activity renders macro-management by single governments redundant. Their function is now to regulate markets to ensure economically efficient solutions. Module Leader :Paul McKeown Student Name: Chen JiaHui Student number: G20555142 1.0 Introduction This report argues that the ongoing financial crisis merely confirms the global political consideration what economists have known for some time. Firstly, it briefly explains how the financial crisis spread around the world in such a short time by globalisation. This report points out that the global financial system is inherently flawed, showing how economies go from stability to instability. Subsequently, it focuses on the link between economic globalisation and macro-management by single government, considering whether Macro-management of a country’s economy is redundant, given the global interconnectedness economy’s activity and business. This report shows government policy has reduced the effectiveness of interconnected economies, such as fiscal policy and monetary policy. After that, it emphasizes that it is imperative for governments to regulate financial markets so as to ensure economically efficient solutions. Consequently, this report concludes that although macro-management by single government is less......

Words: 2380 - Pages: 10