The Economic Impacts Of Fiscal Policy As An Economic Issue
The US economy was embroiled in a period of recession. During this period of time, unemployment rates rose significantly. As a result, the real GDP declined. The government had to find a way to combat this problem. The government had to find a way to stimulate aggregate demand. Aggregate demand is the total of expenditures in the economy. This means that consumption, investment, government spending and export net of imports all had to be added together (“Fiscal,” n.d.). Therefore, to stimulate aggregate demand, there has to be an increase in spending by households, firms, and government (Viard, 2015). As a result, the government had to use an Expansionary fiscal policy which would increase government spending and consumer spending. This would in turn increase the aggregate demand, increase the real GDP and reduce unemployment …show more content…
One problem may result in the creation of another problem (domino effect). For instance, if the Government is funding a project and it is not finished on time that may develop a problem with government spending. Also, if the demand-deficient unemployment decreases because aggregated demand is stimulating, inflation may worsen and price levels will rise as a result (“Advantages,” 2011).
Conclusion and Recommendation To conclude, Fiscal policy like any other policy has its advantages and its disadvantages. It Affects the economy in a numerous amount of ways. It can cause an economy to be stable by controlling its inflation or bringing it out of a period of recession. It can positively affect unemployment rates or negatively affect it. Due to its various disadvantages, fiscal policy can prove to be ineffective at certain periods. However, accurately observing economic events and making good and timely decisions can prove fiscal policies to be effective in given situations. In order to get the best benefits out of fiscal policies, I recommend:
• Accurately forecasting in the future, so that fiscal policies will be an effective solution for an economic problem and that the effects of lags be