Macro economics - Essay Example

Download file to see previous pages It categorically defined employee and enables the Federal government to enforce acceptable means necessary to promote employment for economic stability (McConnell and Brue 214). These statues as well as other directives from the government are factors that shape a country’s fiscal policy. Prior to the Great Depression, national government intervention was limited to foreign policy and national defense. Most of fiscal policies are determined in state levels of government who had ample discretion in the formation of their own guidelines. Economists often refer to another important factor in the determination of economic dynamics in the form of political influence as a major factor in the federal budget. When there is unsupervised spending by politicians into particular interests groups then this could lead to exhaustive government expenditure relative to the tax revenues and leads to federal budget deficits (Boyes and Melvin 248). Staggering budget deficits is a major problem for any economy that brings imbalance to the entire system and impedes growth bringing adverse effects to members of a country’s population. There are two broad categories of fiscal tools as enumerated by McEachern as automatic stabilizers and discretionary. The first are programs that regulate the economy by stabilizing disposable income through the real GDP and consumption. The best example of an automatic stabilizer is income tax which automatically modifies the disposable income of an individual. The second is a direct manipulation by the government to encourage its macroeconomic objectives including full employment, growth and price stability. They may differ in the length of execution and as to...
This paper discusses such important macroeconomic concepts as business cycles, fiscal policy and fiscal tools. Business cycle is essentially the rise and decline of economic activity. There is no specific or clear-cut span of time that determines a business cycle and the same may range for several years. There are four phases of the business cycle that comprises of peak, recession, trough and recovery
A widely used measurement of output is the Gross Domestic Product (GDP) of a country which sees peaks and lows
The occurrence of business cycles and its concurrent effect on increasing unemployment and inflation prevents economic growth.The mandate of a country to influence economic activity is the central purpose of fiscal policy. Macroeconomic theories are utilized in the formulation of the scope and limitations of fiscal policy.
An example of a direct reaction of the government founded on fiscal policy is the Employment Act of 1946 when unemployment became a major problem after World War II.
Prior to the Great Depression, national government intervention was limited to foreign policy and national defense.
There are two broad categories of fiscal tools as enumerated by McEachern as automatic stabilizers and discretionary The first are programs that regulate the economy by stabilizing disposable income through the real GDP and consumption. The second is a direct manipulation by the government to encourage its macroeconomic objectives including full employment, growth and price stability.
The 2009 stimulus plan implemented by President Obama is a good example of a discretionary fiscal tool adopted by the U.S. Government
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