Expansionary Economic Policy
Expansionary Economic Policy 2
In this term paper I will discuss the monetary and fiscal policy, their roles and contribution to our economy. This includes the role of the government and their involvement in changes in taxes, government spending, GDP and employment. The Federal Reserve Bank, also known as the FED, dealing with their requirements of the reserve ratio, the discount ratio, and the open market operations.
Expansionary Fiscal Policy – Taxes, Government Spending, GDP and Employment
The government influences the way an economy works. It uses two types of policies which are the fiscal and monetary policy. Fiscal policy is government spending which most likely will stimulate private investment and improvements in infrastructure. The fiscal policy also included increases in government spending, decreases in taxes and or an increase in transfer payments. The goal is to stimulate the economy, decrease the unemployment rate, and close the recessionary gap. Fiscal policy describes two governmental actions. One is taxation. By levying taxes the government receives revenue. Taxes come in many varieties and serve different specific purposes, but the key concept is that taxation is a transfer of assets from the people to the government. Taxes are a tool because changes in taxes affect the average consumer’s income. And changes in consumption lead to changes in real GDP. By adjusting taxes, the government can influence economic output. Taxes can be changed by a marginal tax rate that can be raised or lowered, and secondly, they can be eliminated entirely, or the tax rules can be modified. Taxes are the involuntary payments that the government sector imposes on the rest of the economy to generate the revenue needed to provide public goods and to undertake other government functions. Personal income taxes are more specifically the taxes collected on the income received by consumers. The...