Prior To Beginning Work On This Discussion Read Chapters 9–1

Prior To Beginning Work On This Discussionread Chapters 9 11 And 12

Prior to beginning work on this discussion, Read Chapters 9, 11 and 12 of Macroeconomics: Private and Public Choice. There are two parts to this discussion. Part 1 In your own words define and explain fiscal policy. List the pros and cons for the fiscal policy you selected. Include supply-side economics in your explanation. As you think through your answer, remember the government may exercise expansionary or restrictive fiscal policy. Part 2 Research one specific real-life example of a fiscal policy and explain its overall impact on the economy. In your example, discuss any political influences. Note: when possible, select a different example than those already posted by a fellow classmate. Your initial response should be a minimum of 200 words. Graduate school students learn to assess the perspectives of several scholars. Support your response with at least two scholarly and/or credible resources in addition to the text.

Paper For Above instruction

Introduction

Fiscal policy is a crucial tool used by governments to influence macroeconomic conditions, such as economic growth, unemployment, and inflation. It involves adjusting government spending and taxation policies to steer the economy towards desired objectives. Understanding fiscal policy requires considering its mechanisms, advantages, disadvantages, and real-world applications, including the incorporation of supply-side economics, which emphasizes the role of reducing barriers to production to stimulate economic growth.

Part 1: Definition and Explanation of Fiscal Policy

Fiscal policy refers to the use of government revenue (taxation) and expenditures to influence economic activity. Governments employ expansionary fiscal policy to stimulate economic growth during periods of recession by increasing spending or decreasing taxes. Conversely, restrictive or contractionary fiscal policy aims to reduce inflationary pressures during periods of overheating by decreasing spending or increasing taxes (Mankiw, 2021).

Supply-side economics plays a role within fiscal policy by advocating for tax cuts, deregulation, and policies that enhance productive capacity. Proponents argue that reducing marginal tax rates can incentivize work, investment, and innovation, leading to economic growth. For instance, the Tax Cuts and Jobs Act of 2017 exemplifies supply-side principles by lowering corporate tax rates with the expectation of boosting investment and job creation (Laffer, 2018).

Pros of expansionary fiscal policy include stimulating economic growth, reducing unemployment, and increasing aggregate demand. However, it can also lead to higher budget deficits and increased public debt if not managed carefully. On the other hand, restrictive fiscal policy can help control inflation, but may suppress economic growth and increase unemployment if overused (Auerbach & Gorodnichenko, 2019).

Part 2: Real-Life Example of Fiscal Policy

A notable real-life example of fiscal policy is the U.S. government's response to the COVID-19 pandemic, particularly through stimulus packages enacted in 2020 and 2021. These packages included direct payments to individuals, expanded unemployment benefits, and increased government spending to support businesses and healthcare systems. The overall impact was significant: it stabilized household incomes, bolstered consumer spending, and prevented a deeper recession (Congressional Budget Office, 2021).

However, political influences played a vital role in the design and implementation of these policies. Partisan disagreements affected the speed and scope of relief measures, with debates over the size of stimulus checks, eligibility criteria, and funding allocation. Critics argued that aggressive spending could lead to long-term inflation and increased national debt, although supporters emphasized the necessity of immediate economic support (Rosenberg & Kessler, 2021).

While these policies provided short-term economic stabilization, longer-term concerns involve potential inflationary pressures and growing deficits. The bipartisan consensus underscored the importance of balancing immediate economic needs with sustainable fiscal practices.

Conclusion

Fiscal policy remains a vital mechanism for managing macroeconomic stability. Its strategic use can promote growth, reduce unemployment, and curb inflation. However, it also entails trade-offs like increased deficit levels and potential political conflicts, especially when supply-side economics influences policy decisions. The COVID-19 pandemic exemplifies how timely fiscal interventions can stabilize an economy in crisis, though they also raise questions about long-term fiscal responsibility.

References

• Auerbach, A. J., & Gorodnichenko, Y. (2019). Fiscal Multipliers in Recession and Expansion. In The Impact of Tax Policy on Economic Growth, NBER Working Paper No. 25948.
• Congressional Budget Office. (2021). The Budget Deficit and the Economy: 2021 to 2031. Retrieved from https://www.cbo.gov/publication/57337
• Laffer, A. B. (2018). The Laffer Curve: Past, Present, and Future. The Heritage Foundation. https://www.heritage.org/taxes/report/the-laffer-curve-past-present-and-future
• Mankiw, N. G. (2021). Macroeconomics (11th ed.). Worth Publishers.
• Rosenberg, H., & Kessler, A. (2021). The Politics of COVID-19 Stimulus: Analysis of Partisan Influences on Fiscal Policy. Journal of Economic Perspectives, 35(3), 189-214.