Expansionary fiscal policy was put into place to help stimulate the economy in the event or possibility of a recession. The fiscal policy helps narrow or close the gap by stimulating the economy and increasing jobs. The Expansionary monetary policies focus more on boosting the money flowing throughout the economy with the right amount if interest decrease. The reasoning for the monetary policies is to help fix the business-cycle contraction and focus on unemployment. Both fiscal and monetary policies help each other by attempting to bring an end to recession. Fiscal policy stimulates the economy by expanding aggregate demand and expenditures through raising and lowering taxes or by increasing government spending (Amacher & Pate, 2012). The expansionary fiscal policy steers towards a larger government budget deficit or a smaller budget surplus (Carol, 2013). The federal reserve bank uses three tools when conducting monetary policy which are; required reserve ratio, the discount rate, and open market operations.
The expansionary fiscal policy supports two different sides of the government’s fiscal policy which are; spending and taxes. This can also then be split into three different tools which are government purchases, taxes, and transfer payment. Government purchases are one of the main devices used by the government sector including those by the federal government used to purchase final goods and services (Gnocchi, 2013). These types of purchases are used for things as little as paper weights to aircraft carriers, office furniture to traffic lights, or highway construction to teachers’ salaries (Gnocchi, 2013). These actual transactions are usually done by individual agencies within the government. For example, the work and repairs done on our roadways are taken care of with funds given to the Department of Transportation. Aircraft carriers on the other hand are purchased with money from the Department of Defense (Weil, 2008). Funds that are acquired by these different agencies are associated with Expansionary fiscal policy (Amacher &Pate, 2012). The specified agencies then purchase the supplemental goods or materials that raise the employment rate, boost aggregate product, and increase income (Amacher & Pate, 2012). The government has increased their spending over the years to help with expansionary policy, which was a drawn out process. An increase in government spending also has led to a bigger government sector (Carol, 2013). Which has in turn forced policy makers to push hard to implement taxes. Taxation was the next tool in regards to fiscal policy. This involved individual income taxes that were deducted by the government, which also allowed other taxes to be used also (Gnocchi, 2013). These taxes are an involuntary fee taken by the government from the entire economy to build the capital required in contributing goods to the public and to fund of other essential government activities (Martin, 2013). There are also income taxes, which are taxes that are collected or withheld from the gross income of all working members of a household (Gnocchi, 2013). The Internal Revenue Service (IRS) are the ones that enforce all tax regulations and collects all federal income taxes for the government. The IRS uses a set of predetermined rates that have already been calculated to tell how much each working individual of the household will pay when collecting these taxes. These taxes are either withheld from the taxpayer’s check or they pay a specific amount annually depending on their income and work situation, then if there …show more content…
Bank reserves are what the Fed’s use to fund Treasury securities, then in turn leads to a raise in the overall quantity of reserves that the bank keeps. Banks are often loan the excess reserves at a reduced rate, which then increases the banks currency supply (Amacher & Pate, 2012). Then the Feds give a discounted or reduced amount that would be close to the interest amount credited to commercial banks for reserve loans (Carol, 2013). The Federal security system was designed to help out commercial banks on the verge of bankruptcy by giving them the reserve loans. The Federal Reserve Banks decide the discounted rates for these type of loans and then they have to be approved by the Board of Governors. Differences with the discount rates are equivalent to additional monetary policy activity in practice (Weil,
The expansionary fiscal policy supports two different sides of the government’s fiscal policy which are; spending and taxes. This can also then be split into three different tools which are government purchases, taxes, and transfer payment. Government purchases are one of the main devices used by the government sector including those by the federal government used to purchase final goods and services (Gnocchi, 2013). These types of purchases are used for things as little as paper weights to aircraft carriers, office furniture to traffic lights, or highway construction to teachers’ salaries (Gnocchi, 2013). These actual transactions are usually done by individual agencies within the government. For example, the work and repairs done on our roadways are taken care of with funds given to the Department of Transportation. Aircraft carriers on the other hand are purchased with money from the Department of Defense (Weil, 2008). Funds that are acquired by these different agencies are associated with Expansionary fiscal policy (Amacher &Pate, 2012). The specified agencies then purchase the supplemental goods or materials that raise the employment rate, boost aggregate product, and increase income (Amacher & Pate, 2012). The government has increased their spending over the years to help with expansionary policy, which was a drawn out process. An increase in government spending also has led to a bigger government sector (Carol, 2013). Which has in turn forced policy makers to push hard to implement taxes. Taxation was the next tool in regards to fiscal policy. This involved individual income taxes that were deducted by the government, which also allowed other taxes to be used also (Gnocchi, 2013). These taxes are an involuntary fee taken by the government from the entire economy to build the capital required in contributing goods to the public and to fund of other essential government activities (Martin, 2013). There are also income taxes, which are taxes that are collected or withheld from the gross income of all working members of a household (Gnocchi, 2013). The Internal Revenue Service (IRS) are the ones that enforce all tax regulations and collects all federal income taxes for the government. The IRS uses a set of predetermined rates that have already been calculated to tell how much each working individual of the household will pay when collecting these taxes. These taxes are either withheld from the taxpayer’s check or they pay a specific amount annually depending on their income and work situation, then if there …show more content…
Bank reserves are what the Fed’s use to fund Treasury securities, then in turn leads to a raise in the overall quantity of reserves that the bank keeps. Banks are often loan the excess reserves at a reduced rate, which then increases the banks currency supply (Amacher & Pate, 2012). Then the Feds give a discounted or reduced amount that would be close to the interest amount credited to commercial banks for reserve loans (Carol, 2013). The Federal security system was designed to help out commercial banks on the verge of bankruptcy by giving them the reserve loans. The Federal Reserve Banks decide the discounted rates for these type of loans and then they have to be approved by the Board of Governors. Differences with the discount rates are equivalent to additional monetary policy activity in practice (Weil,