This theory gives government the ability to affect macroeconomic productivity levels by changing the tax rate or spending levels. Expansionary & Contractionary Fiscal Policy 2. Expansionary Fiscal Policy: This type of fiscal policy is directly related to stimulating aggregate demand. During a recession, government will either increase in purchasing or lower taxes in order to stimulate aggregate demand. Ultimately this is used to illicit a raise in GDP levels (Fiscal Policy).
When the demand for U.S. dollars increases, the value of the dollar will increase or appreciate (Stone 2008, pp. 685). As a result, U.S. products become more expensive for foriegners causing a reduction in exports and increasing imports. This not only effects the U.S. economy, but also affects the economies in other countries. Monetary policies influence and are influenced by international developments, including exchange rates, and based on these market conditions the U.S. government can make strategic changes to these policies to maintain the country’s economic stability (full employment, stable growth and price stability).
Monetary Policy in Automotive Industry The Effects of Inflation on the Automotive Industry In the United States, the economy is what drives the lifestyle of the people who live. There are two extremes, inflation and a recession. “Inflation can be defined as the overall general upward price movement of goods and services in an economy” (Bureau of Labor Statistics, March 1, 2012). A recession can be described as a general slowdown in the activity of the economy. According to Brue (2010), monetary policy is defined as a central bank’s changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth.
There are several ways in which changes in interest rates influence aggregate demand, one of the main changes are through the housing market & house prices. For example higher interest rates increase the cost of mortgages and eventually reduce the demand for most types of housing. This will slow down the growth of household wealth and put a squeeze on equity withdrawal (consumers borrowing off the back of rising house prices) which adds directly to consumer spending and can fuel inflation. Another situation where the monetary policy increases AD is through disposable incomes of mortgage payers. For example, if interest rates increase, the income of homeowners who have variable-rate mortgages will fall – leading to a decline in their effective purchasing power.
In helping to formulate the President’s spending plans, the RMOs assess the effectiveness of agency programs, policies, and procedures, weigh competing funding demands within and among agencies, and help work with agencies to set funding priorities. Once the Budget is enacted, RMOs are responsible for the execution of Federal budgetary policies and provide ongoing policy and management guidance to Federal agencies. As part of these and other responsibilities, the RMOs provide analysis and evaluation, oversee implementation of policy options, and support government-wide management initiatives. (The White House, n.d., para.
There are two types of Fiscal policy put in place to alter the level of aggregate demand; Expansionary fiscal policy and Contractionary fiscal policy. When an economy is in a recession, expansionary fiscal policy is in order. Typically this type of fiscal policy results in increased government spending and/ or lower taxes. A recession results in a recessionary gap meaning that aggregate demand is at a level lower than it would be in a full employment situation. In order to close this gap, a government will typically increase their spending which will directly increase the aggregate demand curve (since government spending creates demand for goods and services).
Dichele Parker Introduction to Business Controversial Issue Project – Does Government Spending Help Alleviate Our Recession? From the research I have done my theory is that the government not only can help, but can alleviate the current recession we are in. In the course of a recession, a government can try to increase economic growth, employment and motivate the economy by spending the taxpayer’s money on government plans. This approach is based on Keynesian economics, famously utilized in Franklin Roosevelt’s New Deal in 1937 during the great depression, and now resurfacing in the eye of our global crisis. Economic growth is defined as the increase in the quality and quantity of goods and services, which results in hundreds of thousands of entrepreneurs hiring more workers, presenting technological innovations and improving worker productivity.
More reserves are held in their account at the central bank. With these additional reserves, they can expand credit and create more money. (Bagus 2011) The FED is more passionate than the ECB about cutting interest rates to boost the economy. The ECB main goal is to keep inflation low, while the FED fights a double battle with not only fighting inflation but also unemployment. More things can affect how the ECB reacts when I comes to inflation and mostly targets a broader price index that includes things that doesn’t bother the FEDs as much, such as the Libya-related oil spike in 2011.
What effect does outsourcing have on Americans? Where are American jobs outsourced to? Outsourcing has become an increasing new trend in the business world. In her article, “Trade: Outsourcing Jobs,” Otterman (2004) stated that “shifting jobs to lower-wage countries is at an increasingly growing rate among the U.S. businesses looking to global markets for the lowest costs to increase on profits” (Otterman, 2004). Who is benefiting from outsourcing?
Government spending consists of salaries for government employees, defense spending, aid programs, and other cash outflows. Government revenue primarily consists of taxes. When the government spends more than they receive in the form of revenue, a budget deficit occurs. The causes and the implications for long-term economic growth due to a high budget deficit on the economy, along with the role that fiscal and monetary policy plays, will be defined and explained. The development of a increasing budget deficit has been caused by a weak economy and the result of increased government spending in areas such as health care, education, defense spending, low interest rates, lowering taxes, and the increase in welfare and entitlement programs.