The Trump Administration Could Test Whether Benefits Help The Economy Case Study

Improved Essays
a. The article “The Trump Administration Could Test Whether Deficits Help the Economy” written by Neil Irwin for The New York Times was published in an attempt to explain the new presidents proposed economic plan for the nation.
b. Even though Trump did not go into extreme detail on his economic plans as president, he made it clear that he would be introducing new fiscal policies.
c. In particular, Trump plans on utilizing expansionary fiscal policy by cutting taxes and increasing government spending.
d. Irwin worries this policy will result in a larger budget deficit for the country.
e. This policy may bring about some needed inflation.
f. The main worry many economists seem to have about Trump’s policies is that the economic growth it
…show more content…
The media prefers to use the word stimulus to describe fiscal policy.
b. In an effort to build consumer confidence.
c. There are two types of fiscal policy: expansionary and contractionary.
i. One type is expansionary fiscal policy.
1. It is utilized during a recession.
2. The government will increase spending a lower taxes in an effort to shift the aggregate demand curve to the right and bring the economy to equilibrium. ii. The second type is contractionary fiscal policy.
1. It is used during an expansion.
2. The government will decrease spending and increase taxes in an effort to shift the aggregate demand curve left and bring the economy back to equilibrium.
d. There are quite a few problems with fiscal policy, though.
e. Crowding out can result in a few different scenarios.
i. Indirect crowding out occurs because the government has lowered the price of bonds and as a result, nominal interest rates go up and therefore the investment sector decreases. ii. Direct crowding out occurs when a government decide it wants to provide a good or a service the population needs. The private firms and businesses are unable to keep up with the government and are forced to go out of business. This scenario also results in a decrease in the investment

Related Documents

  • Improved Essays

    However, the fiscal policy unfortunately increases the deficit budget that makes inflation goes high, which eventually makes the people lose their jobs and caused them into recession. Afterwards, the Federalists used this particular example to conclude that the government shouldn’t interfere with helping the economy. They also included the fact the government shouldn’t be in charge of regulating the economy, where they might corrupt the reserve system. In the conclusion, the fiscal and monetary policy can either run the economy which they may help prevent inflation or recession. Keywords: federalists, monetary and fiscal policy Deficit Budget The economy should be regulated by the fiscal policy while the government use its powers to cut taxes and spend money to control the interest rates.…

    • 1476 Words
    • 6 Pages
    Improved Essays
  • Improved Essays

    Furthermore, if interest rates change after a recession, this could lead to a greater economic downfall that could have been prevented by increasing at a steady rate earlier. My recommendation is that the Fed should increase interest rates steadily in order to protect the economy against a potential recession. If there is an increase in government spending, GDP will increase, but higher interest rates will decrease investment spending and GDP, so an uncertainty will always…

    • 995 Words
    • 4 Pages
    Improved Essays
  • Great Essays

    After a while, though, when tax size keeps increasing, tax revenue actually starts to decrease at some point. In short, as tax size rises, revenue from the tax rises in the beginning, but then decreases. The curve’s maximum is the most efficient point, as it is where the tax revenue is the highest. Putting this in a real-world perspective, based on the diagram, if a government raises taxes then more revenue should be made, putting more money towards government-funded programs (education, healthcare, welfare, etc). However, raising the tax rate when it is already high actually reduces tax revenue, reducing the amount of money that could benefit the people as a whole and thus the economy.…

    • 1219 Words
    • 5 Pages
    Great Essays
  • Improved Essays

    The president should introduce the lower wages policy that will lead to a reduction in production costs as well as improvement of competitiveness. On the other hand, the government should introduce the policy of protectionism that will increase tariffs on imports or imposing of quotas. c) It has a capital account surplus. When a country has a capital account surplus is much better that the current account deficit. We recommend to the president that the best way of solving a capital account surplus is by balancing it with a current account deficit.…

    • 912 Words
    • 4 Pages
    Improved Essays
  • Superior Essays

    The expansionary stage is focused on lowering overall unemployment rates by increasing the money supply, also intensify consumer spending to spark economic growth. This approach is favored by many central banks because it is simple and draws little to no interest (Monetary). The contractionary is used to slow down the rate of growth of money supply; this is to control inflation in the economy. The down turn to this policy is it can boost unemployment, and slow economic growth. “An example would be the Federal Reserve’s intervention in the early 1980’s… This hike resulted in a recession, but did keep spiraling inflation in check” (Monetary).…

    • 1347 Words
    • 6 Pages
    Superior Essays
  • Improved Essays

    The article starts out by saying the Fed tried to upstart the economy by reducing interest rates, and it was unsuccessful to jumpstart the economy. A reduction in the interest rate, is an expansionary monetary policy. Meaning it is a policy the Fed uses to increase the money supply in the economy. This policy affects many markets, the first market being the money market. A shift to the right of the money supply line in the money market will decrease the interest rate, since money demand is downward sloping and money supply is vertical (Graph 1).…

    • 929 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Concerning fiscal policies, having the government decrease taxes, or increase the public's spending, like public health, building roads, etc will. "Lower taxes increase disposable income and therefore help to increase consumption, leading to higher aggregate demand" (Pettinger, 2011). With that happening, there will be more job opportunities available, leading to the decrease of unemployment rates. Regarding monetary policies, the government could decrease the interest rate. Pettinger (2011) states, "Lower rates decrease the cost of borrowing and encourage people to spend and invest."…

    • 721 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    The Federal Reserve set the limit to the amount of money that 's allowed to be borrowed from the government to banks. So increasing the interest rates would cause banks to increase their rates as well if they want to make money as well. As a result, consumers spend less, causing prices to drop and slowing down the inflation. Secondly, the reserve requirements must increase. When the reserve requirement increases, it allows banks to hold more money to cover up the costs of withdrawals, thus limiting inflation because consumers will borrow less and decrease spending.…

    • 1320 Words
    • 6 Pages
    Improved Essays
  • Improved Essays

    Fiscal is a change in government spending or taxation, an example of fiscal policy is to reduce taxation and thus give consumers more spending power, hopefully increasing economic activity. Monetary policy is centred on interest rates, for example reducing…

    • 1259 Words
    • 6 Pages
    Improved Essays
  • Improved Essays

    Aggregate Demand

    • 1467 Words
    • 6 Pages

    Mr. Benanke respectfullt does not agree with this based on the facts that his tactics have shown improvement within the country’s finicial system. Mr. Benanke states that the Fed has transferred billions of dollars into the country’s Treasury department and that the monetary policy does promoth growth and eventually job creation. He proceeds to urge Congress to continue to make gradual cuts within their finicial capabilities and we will…

    • 1467 Words
    • 6 Pages
    Improved Essays