Essay Make America Great Again : An Expansionary Fiscal Policy

995 Words 4 Pages
“Make America Great Again” is the slogan Donald Trump carried across the United States, winning the Electoral College and bringing forth a new presidency surrounded by doubts of uncertainty. With uncertainty greater post-election, it is up to the government and the Fed to ensure the economy remains stable and people’s confidence in the dollar strengthens. President-elect Trump has proposed an expansionary fiscal policy where he aims to increase government spending on infrastructure and the military to stimulate the economy and increase employment, all while cutting taxes. As a result, the Fed may choose to pursue a contractionary monetary policy and increase interest rates in order to decline investment and GDP and fight inflation (Reuters).
Usually with building infrastructure, the government pays workers with taxpayer money; however, Trump plans to give these projects to private corporations. As profit- maximizing businesses, these corporations will invest in projects with the highest rate of return, but if interest rates increase, there are now fewer projects with expected returns greater than the relevant interest rate, therefore fewer projects will be undertaken and investment spending will fall. Due to the combination of high interest rates, low returns, and uncertainty, these businesses might decide to not invest and will thwart Trump’s goal of stimulating economic growth.
Trump has also promised tax cuts for households and businesses in order to increase spending…

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