Expansionary Economic Policy
Expansionary Economic Policy
David Gors
ECO203: Principles of Macroeconomics
Nick Bergan
April 14, 2013
In economic terms, a recession is defined as a general slowdown in economic activity. In an effort to move the economy out of a recession, the government would implement expansionary economic policies. One action the government would take would include conducting expansionary fiscal policy. The other action taken would be conducting expansionary monetary policy. Both of these actions would have an effect on such things as money supply, interest rates, spending, aggregate demand, GDP, and employment. Expansionary fiscal policy consists of change in government expenditures, or taxes, in order in influence the level of economic activity, inflation, and economic growth (Amacher & Pate, 2012). Expansionary fiscal policy is when taxes are cut and government spending is increased. Lower taxes will increase disposable income. The increase in disposable income will lead to higher levels of consumer spending. In theory the more money that consumers spend, the higher the chance for economic growth. Tax cuts will also lead to an increase in aggregate demand. Aggregate demand is the total demand for goods and services is the economy. As stated earlier, a tax cut will increase people’s disposable income therefore increasing the amount of money available for consumption. The increase in consumption would increase the demand for goods and services. This in turn increases GDP (gross domestic product). GDP is the value of the total output that the economy produces in a given time period (Amacher & Pate, 2012). The higher the demand that there is for goods and services, the need for employees to produces these goods and services are needed. This increases employment. Lower tax cuts will also increase people’s incentive to work. With lower taxes comes more money to spend from their paychecks. There are arguments, from economists and politicians, regarding the
David Gors
ECO203: Principles of Macroeconomics
Nick Bergan
April 14, 2013
In economic terms, a recession is defined as a general slowdown in economic activity. In an effort to move the economy out of a recession, the government would implement expansionary economic policies. One action the government would take would include conducting expansionary fiscal policy. The other action taken would be conducting expansionary monetary policy. Both of these actions would have an effect on such things as money supply, interest rates, spending, aggregate demand, GDP, and employment. Expansionary fiscal policy consists of change in government expenditures, or taxes, in order in influence the level of economic activity, inflation, and economic growth (Amacher & Pate, 2012). Expansionary fiscal policy is when taxes are cut and government spending is increased. Lower taxes will increase disposable income. The increase in disposable income will lead to higher levels of consumer spending. In theory the more money that consumers spend, the higher the chance for economic growth. Tax cuts will also lead to an increase in aggregate demand. Aggregate demand is the total demand for goods and services is the economy. As stated earlier, a tax cut will increase people’s disposable income therefore increasing the amount of money available for consumption. The increase in consumption would increase the demand for goods and services. This in turn increases GDP (gross domestic product). GDP is the value of the total output that the economy produces in a given time period (Amacher & Pate, 2012). The higher the demand that there is for goods and services, the need for employees to produces these goods and services are needed. This increases employment. Lower tax cuts will also increase people’s incentive to work. With lower taxes comes more money to spend from their paychecks. There are arguments, from economists and politicians, regarding the
References: (2011). Retrieved April 14, 2013, from frbsf.org: http://www.frbsf.org/publications/federalreserve/monetary/tools.html Amacher, R., & Pate, J. (2012). Principles of Macroeconomics. San Diego: Bridgepoint Education, Inc. David, W. N. (2008). Fiscal Policy. Retrieved April 14, 2013, from econlib.org: http://www.econlib.org/library/Enc/FiscalPolicy.html Global Poll Shows Support for Increased Government Spending and Regulation. (2009). PR Newswire . How the Fed Guides Monetary Policy. (2011). Retrieved April 14, 2013, from frbsf.org: http://www.frbsf.org/publications/federalreserve/fedinbrief/guides.html