Respond to the following questions regarding fiscal policy in complete sentences.
1. Define fiscal policy. Include the goals and tools of fiscal policy and the entity that controls it.Fiscal policy is the government use of taxing and spending to meet economic goals. The government uses fiscal policy is to promote economic goals such as full employment, price stability, and economic growth.
Most citizens accept the taxes and laws the government and fiscal policy enforce but in exchange they receive protection and other important benefits. 2. Compare and contrast fiscal and monetary policy.
How are they alike and how do they differ? Fiscal policy is mainly controlled by the federal government through the U.S congress. The tools it uses are taxing and spending laws. Monetary policy is the federal reserve actions that monitor and control the U.
S money supply to meet economic goals. Both policies have to meet economic goals, for example to promote full employment, price stability, and economic growth. Also, the fiscal policy, Federal Reserve, and others use the monetary policy.
The fiscal policy and the monetary policy are different because the fiscal policy involves the government increasing or decreasing tax rates and spending, while the monetary policy involves increasing or decreasing the interest rates. This policy also involves the money supply, by decreasing or increasing they could help fight recession, inflation, and other things. 3. Should the government create a law mandating a balanced federal budget? Support your position with evidence from the lesson.I believe that the government should create a law that mandates a balanced federal budget because people will claim fewer investments in the U.S government.
Also, with a law mandating a balanced federal budget, it would be harder to get more money than needed. Plus, the government can use more organization than it already has, to prevent us from entering into further debt and they will be able to pay the money that has been owed. Part TwoConsider the following three scenarios. Respond to the reflection questions related to each scenario with your suggestions for government action in complete sentences.
Scenario 1: The government is currently spending three billion, one hundred million on programs and brings in three billion, five hundred million through taxation.4. Does this create a budget surplus or deficit? Explain.Reading the scenario, the government created a surplus because it raised taxes and takes more money than they are spending.
5. As a member of Congress, what changes would you suggest to fiscal policy to balance the budget? Explain at least two ways you would use the tools of fiscal policy to balance the budget by recommending an “increase” or “decrease” to each tool in your explanation.The changes I would suggest if I was a member of a congress to the fiscal policy would be to balance the budget by increasing the taxation. And I would also decrease the government’s spending because they are spending seven million in total which is greater than what is being taxed, five million. Also, when both taxation and spending are the same the budget will be balanced.
6. What are the benefits and opportunity costs of the changes you propose? Consider the impact on economic growth, price stability, and unemployment.The changes I chose would impact the economic growth, this is because by increasing taxation means that economic growth is slowed. By decreasing the spending, a decrease in economic growth could happen. These two options portray a decrease in economic growth, this means that money supply and inflation is decreased which means people would be paying less money for anything they use or buy because goods or products won’t be overpriced.
Unemployment could rise because businesses would prefer to hire less people to pay them more money. Lastly, the benefit I would be making would be that the government would be producing more money but the federal budget would be balanced. Scenario 2: The government is currently spending three billion, seven hundred million on programs and brings in two billion, nine hundred million through taxation. In addition, the nation has experienced a period of rising unemployment.
7. Does this create a budget surplus or deficit? Explain.Reading this scenario, the government is spending more money than what is being collected in taxes and they aren’t making money, it would create a deficit. 8. As a member of Congress, what changes would you suggest to fiscal policy to balance the budget? Explain at least two ways you would use the tools of fiscal policy to balance the budget by recommending an “increase” or “decrease” to each tool in your explanation.The changes I would suggest to the fiscal policy to balance the budget would be to decrease the government spending. I would also increase taxation because the government is spending twelve million which is greater than nine million, in taxes. This would be able to give back some money that was given up to, use in the program funding.
I would also suggest to the Federal Reserve to buy government securities. 9. What are the benefits and opportunity costs of the changes you propose? Consider the impact on economic growth, price stability, and unemployment.The benefits are that the process of economic growth will be slowed down because I decided to decease spending which means that there is a decrease in economic growth. Also, I decided to increase taxation which results in slowing down economic growth. Plus, the benefit of taxation is that the government will be producing more money and the benefit of decreasing the government’s spending is that they will be saving money that was being used before. Lastly, this could result in price stability, unemployment could decrease because when the Federal Reserve buys government securities, banks selling these securities have an increase in money supply, which leads to consumers having money to invest in their businesses or anything else they want, and lastly the federal budget will be balanced.
10. How might your efforts to balance the budget conflict with efforts to decrease unemployment, if at all?I think my efforts would decrease unemployment because consumers would be able to ask for loans and by this way they can invest in companies or other things. Companies will have enough money supply to increase their staff. It’s difficult to find ways to decrease unemployment but by the government buying securities, this would be a great help to the people and its economy. Scenario 3: The nation is currently experiencing a period of rising prices. Inflation is making consumer goods increasingly difficult to afford as wages have remained constant.11. As a member of Congress, what changes would you suggest to fiscal policy to balance the budget and address unemployment? Suggest at least two specific changes to revenue and expenditures.
The changes I would suggest to the fiscal policy would be to balance the budget and address unemployment would be to decrease taxation and to increase the government spending because this could increase economic growth. I would also suggest to the Federal Reserve to buy government securities to decrease unemployment. Lastly, by decreasing money supply, this would help fight inflation. 12. What are the benefits and opportunity costs of the changes you propose? Consider the impact on economic growth, price stability, and unemployment.
The impacts my decisions would have on the economy would that economic growth would increase and prices would become lower and stable. Although, decreasing money supply could slow economic growth, I don’t think it would have a large effect because the rest of the things I chose would help increase economic growth. Business owners would also be able to afford to hire more people because the government securities that were bought would lend money to all consumers, decreasing unemployment. Unemployment would get better because people would be able to work at multiple jobs without being afraid of being fired. Maintaining an affordable lifestyle is what every citizen wants.
13. Are the proposed policies contractionary or expansionary? Explain.The proposed policies are expansionary because economic growth would increase. Inflation is a huge problem that no one wants in their economy and mostly at every scenario inflation would be decreased. Expansionary policy also fights recession which means that unemployment would be decreased most of the time.