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https://studentshare.org/macro-microeconomics/1481126-journal-opinion-article.
In earlier years, the government followed the policy of increased government expenditure and public debt in order to boost the aggregate demand in the economy of the country. The fiscal policy of the government embraced budget deficits in order to fuel the GDP growth rates of the country. An examination of the demand supply curve would help to explain the previous fiscal policy of the government. With the increase in government spending, the flow of money in the economy increased leading to higher purchasing power which boosted the demand of the market.
Thus the demand line shifted upwards as shown in the graphical representation. In order to maintain equilibrium in the markets, the private investments and production in the economy rose thereby resulting in increased GDP growth rates. As a result of the increase in demand against the prevailing supply in the market, the prices of goods and services also increased. With the occurrence of financial recession, the production level in the economy fell and thus due to the fall of supply in comparison to the demand, inflation cropped up.
The slowdown of the economy of US resulted in job cuts and increase in unemployment rates which cropped up to even 9.1% in the periods after the financial crisis. Along with the plunge in economic performance, the displacement in the position of equilibrium resulted in the hike in prices of goods and services. This prompted a change in the policies of the government of US. The occurrence of economic depression highlighted the drawbacks of Keynesian economic policies of increasing government expenditure in order to boost the demand of the economy.
In doing so, the US government incurred a deficit of $ 1 trillion (Elwell 50). Thus the fiscal policies adopted by the US government were framed with an objective to achieve economic consolidation and reduce budgetary deficits. After the presidential election of 2012 in US, the democrat government in US adopted the policy of reducing the government expenditures in order to control the budgetary deficits. The government decided to impose cuts on the military budgets while spending on areas like health care and education.
The budgetary deficits have been reduced and it is forecasted that the government would keep the deficit under control in near future. In order to stabilize the economic scenario of the country and to neutralize the effect of decline in government spending, the revenue collection of the government was also decreased by adopting fiscal policies of tax reduction. This fiscal policy of the government is likely to continue in future till the time the economic position of the country is revived. The taxes have earned the highest revenues for the country through ages.
The government strategically adopted the policy of reducing the collections through taxes in order to maintain a balance with the reduction of government spending. Leaving the conventional path of boosting private investments though government expenditures, the US government focused on the growth of the middle class and the labor markets, thereby encouraging the services industry. In order to reduce unemployment in the country, the government has brought new legislations on outsourcing. The unemployment rates have decreased comparatively post 2012 from 8.3% to 7.6%.
In order to gain economic revival, the government has almost doubled its exports in order to tap the opportunities of overseas markets. The growth in exports of
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