How does the federal government implement its fiscal policies? Given economic conditions today, do you suggest expansionary fiscal policy or contractionary fiscal policy? How would your suggestions affect production and employment? Why?
I'm sure your text materials explain the answer to the first question.
The other questions ask for YOUR opinion.
The federal government implements its fiscal policies mainly through changes in government spending and taxation. There are two types of fiscal policies: expansionary and contractionary.
Expansionary fiscal policy involves increasing government spending and/or reducing taxes to stimulate economic growth. This is typically done during times of recession or economic downturn to help boost aggregate demand and encourage consumer spending, investment, and job creation. The idea is that with more money available to businesses and consumers, they will spend more, leading to increased production and employment.
On the other hand, contractionary fiscal policy involves decreasing government spending and/or increasing taxes. This is typically implemented during times of inflation or economic overheating to slow down the economy and tame inflationary pressures. By reducing spending and increasing taxes, the government aims to decrease aggregate demand, which can help control inflation but may also potentially lead to a slowdown in production and employment.
Given the current economic conditions, it is important to assess whether expansionary or contractionary fiscal policy is more appropriate. If the economy is facing a downturn or recession, expansionary fiscal policy might be recommended to boost economic activity, increase production, and create more employment opportunities. On the other hand, if there are signs of inflation or the economy is overheating, contractionary fiscal policy might be considered to control inflationary pressures, even though it could result in reduced production and employment.
Ultimately, the suggestion for expansionary or contractionary fiscal policy depends on a thorough analysis of the economic indicators, including GDP growth rate, unemployment rate, inflation rate, and other relevant factors. It is crucial for policymakers to consider the potential impact of their decision on production and employment before implementing any fiscal policy measures.