Fiscal Policy

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Decreasing the governments’ deficit is a difficult challenge that the government faces when running a stable economy. The government uses the fiscal policy to make decisions about its expenditures and taxes to help bring the economy to stable ground. Expansionary and contractionary fiscal policy is used in different situations to achieve economic goals. In simple terms fiscal policy is how the government changes how it spends its money and while doing so there are many challenges that are faced. Fiscal policy is the discretional changes to government expenditures or taxes to achieve national economic goals. When there are certain economic crises, the government has to make changes to how it spends government money to decrease deficit and eliminate inflationary and recessionary gaps by increasing or decreasing aggregate demand. Raising, or lowering, taxes are also a major factor in the fiscal policy. Raising taxes gives more money to the government, but decreases consumption, investment, and net exports by individuals, foreign country residents and firms (Text, p. 278 -279). The main goal of fiscal policy is to generate economic growth and maintain the nation’s stability. There are many challenges that offset the fiscal policy. As the government continues to increase its spending and does not raise taxes, it borrows more money to finance its spending causing a greater deficit. There is also the direct expenditure offset that occurs when an increase in government spending will compete with the private sector in that same area. Time lag is also an issue with the fiscal policy. In order for the policy to take effect there is a lag in time when collecting information about the economy currently, the time between recognizing the... ... middle of paper ... ... late 2000s. In the first year after the recovery, the fiscal policy was used to add growth by the 2009 federal stimulus package. Government deficit has continued to grow since then and interest rates did not rise as expected. Little fiscal policy is used today since 2011 and has caused great concern throughout the United States as the economy remains very weak. Currently there is no fiscal policy plan to reduce the government deficit in the future (Tyson, 2013). Fiscal policy should not always be used in the everyday economy but is used as a recovery strategy to recover and stabilize the economy by using either expansionary or contractionary fiscal policy. If planned correctly, fiscal policy has shown from the past to recovery a pressured economy but there is skepticism of its ability because of time lag and how much government deficit the nation is facing today.

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