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Fiscal Policy

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According to (Krugman and Wells 2009) a brief explanation of fiscal policy is when the government uses taxes, government transfers and government purchases of goods and services to shift aggregate demand curve to the right to help heal the economy. (Reem Heakal 2010) describes it in simpler terms as the means by which the government adjusts its levels of spending in order to monitor and influence a nation’s economy. It is the sister strategy to monetary policy with which a central bank influences a nation’s money supply. Reem Heakal 2010 explains that Keynesian economics in theory can influence the macro economy by influencing productivity levels by increasing or decreasing taxes and public spending. This fiscal policy is set in place to get the economy back on track by increasing consumer spending and lowering unemployment. There are tools in the fiscal policy.
Ex.: Is an investment tax credit which is a tax break to consumers. (Finishing the Job 2010) talks about the economic crisis was aided with swift stimulus packages to 130 million Americans and continued to find creative ways to unfreeze the credit markets. To summarize fiscal policy is too used to: Stimulate the economy, return to full employment, stabilize prices and combat inflation. Expansionary and contractionary means what it sounds like. We want to expand the economy and aggregate demand (A shift to the right in the demand curve) with government spending thus balancing it with contractionary policy ( A shift to the left in the demand curve to combat inflation). (Weil, D. 2008) explains that you will know when expansionary fiscal policy is happening when the government spending exceeds the tax revenue. He also explains that a contrationary policy happens when the government spending is lower than the tax revenue. First let’s take a look into the “Expansionary” policy. The government uses this policy to close up economic gaps caused by recession. (Krugman and Wells 2009) explains this policy well by breaking it down: 1. An increase in government purchases of goods and services. 2. A cut in taxes. 3. An increase in government transfers. A. Examples of government transfers are funds for the military, welfare, food stamps, Medicare/Medicaid, social security and education to name a few.
Now let’s go over Contractionary policy. The government uses this policy to lower the aggregate demand a little to combat the possibility of price hikes and inflation. (Krugman and Wells 2009) again explains this policy by breaking it down in three main points. 1. A reduction in government purchases in goods and services. 2. An increase in taxes. 3. A reduction in government transfers. A. Examples of these types of transfers the government might cut back on are stimulus packages as mentioned above by President Obama in late 2009.(Finishing the Job 2010) President Obama signed the American Recovery and Reinvestment Act of 2009—the largest countercyclical fiscal stimulus in American history.
How can American consumers influence decision makers on fiscal policies? This is a good question. Everything we buy, the choices we make, how and where we spend our money, has an impact on the collective whole or aggregate economy. One way we can change is to vote. It is so amazing how many people don’t even bother to vote. If you were to write to your local congressmen and lobbyists it can greatly get the attention of policy makers. This is what we call “Special Interests” groups that often fund many candidates when they are running for office. There are many times that I am stopped in front of stores and asked to fill out a survey that deals with homeless, a children fund ect. That is going straight to the senate. Social workers are a great advocate in hearing the cries of the people. (Lombine, R and Lombine, E 2010) an example of changing the policy of homeless, Rich discussed how to influence government policies to make ending homelessness a reality. Social workers are morally and ethically obligated to be on the front lines to end homelessness. There are others that can effect change through the jobs they do, internships, voting, voting and registering others to vote, begin active members of the NASW and other organizations, participating in causes and student government at school, getting some direct service experience, volunteering and leveraging social media in advocacy.
(Weil, D. 2009) says that some economists have argued that the effects of fiscal policy on
Future taxes will lead consumers to change the way they save their money. Many consumers are getting smarter and realizing that a tax break today means a tax hike in the future. The argument continues, that people will simply save the amount of tax cut or incentive and put it in the bank, rather than stimulate the economy by spending. This type of saving behavior has change the economy in the past five years causing not only a decline, but a full blown recession. It started with the housing market, to small businesses having to close their doors. According to the article “Finishing the Job” (May 27 2010) they reveal that the output in the U.S. is large. The nonpartisan Congressional Budget Office says the gap is around 6% of GDP, and the growth in output is now leading to growth in employment. Reports reveal employment has risen in the past six months. The U.S. economy added almost 300,000 jobs in April 2010, majority of them becoming private sectors. This article goes on and says that analysts predict that the U.S. GDP growth and job gains are continuing at a steady pace. In the anticipate underlying the 2011 budget, the Administration project GDP growth of three percent over the four quarters of 2010 and employment growth of roughly 100,000 per month. Nonetheless the article later contradicts itself by quoting Unemployment in the United States recently ticked up to 9.9 percent. Some people have suggested that our high unemployment reflects economic changes or different factors not to easily corrected. The new normal is simply viewed as high unemployment. The author of this article disagrees with the optimistic view of the reason unemployment is high due to the fact of the economy producing well below its capacity. To me that is far from being” the new normal”, it is” the old cyclical”. Stimulus packages received back in 2008 really didn’t stimulate the economy like they anticipated it would.

References
Krugman, P & Wells, R (2009). (2nd ED.). New York, NY: Worth. Retrieved October 17, 2011, from AIU Online, Virtual Campus website.
Heakal, R. Investopeida (2010). What is fiscal policy? Retrieved October 17 2011, from http://www.investopeida.com/articles/04/051904.asp
Finishing the Job: The Policies Needed to Ensure Full Recovery and Fiscal Stability in the United States. (May 27 2010). Retrieved October 17 2011, from http://www.whitehouse.gov/administration/eop/cea/speeches-testimony/finishing_the_job
Lombino, R and Lobino, E. (March 21st 2010). How to influence government policy to end homelessness. Retrieved October 17 2011, from http://upoverty.change.org/blog/view/how_to_influence_government_policy_to_end_homelessness
Weil, D. Fiscal policy (2008).Retrieved October 17, 2011, from http://www.econlib.org/library/Enc/FiscalPolicy/.html

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