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Pros And Cons Of Expansionary Fiscal And Monetary Policies

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Our country has experienced some trifling times throughout these two decades. Due to these experiences our economy has taken a great burden which has resulted in unsubstantial unemployment rates, fluctuating interest rates, unstable GDP, and an increase in taxes. Our behavior when involved in a national crisis is, we panic and turn to the government to fix the chaos and restore peace. The federal government’s responsibility to its citizens is to respond to the changes in the economy by using the necessary tools to re-establish stability. Expansionary Fiscal and Monetary Policies are economic policies used by the government to level out the extreme swings in our economy. Due to the previous state of the US economy, the Federal Government had…show more content…
When the government engages in fiscal policy it basically decides what products they want to purchase; what payments it wants to dispense; what taxes it’s going to collect or cut. Fiscal policy directly affects the budget and the deficit. The difference of what a government spends and what it gains in taxes in a given period is known as a budget deficit and there are many reasons how this can happen. For instance, if our government keeps spending money that does not exist, obviously the more debt will accumulate. The government cannot keep this up without creating more debt. It’s the same as budgeting your personal accounts by getting a new credit card or loan to consolidate old debt and then re-use your old cards. You end up digging yourself in a deeper hole in the long run. Another reason might be that due to the growing unemployment rate, there are less taxes being paid to pay our nations bills or to put back into the economy. “Expansionary fiscal policy is when spending is higher than the revenue or the budget is in deficit. Expansionary fiscal policy raises the aggregate demand when the government increases purchases and keeps taxes constant and when they cut taxes and increase transfer payments giving households larger…show more content…
Typically, when the economy is in the slumps you can expect the deficit as well as government spending to rise due to the demands on safety-net provisions and falling tax revenues. Fiscal policy is used for managing the economy; it also affects the total Gross Domestic Product or GDP. Expansionary fiscal policies should raise the demand for goods and services, leading to an increase in output and prices. So when the economy is in a recession, unused production ability and unemployed workers increase, this demand will lead to more output without increasing prices. During a recession, automatic stabilizers kick in, like unemployment insurance and changes in tax
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