BUS 626

Part One:

Fiscal policy is a tool that the government uses to influence the economy through tax rates and adjusting how it spends its money. Fiscal policy is used to promote growth for the economy that will be sustainable and help to overcome poverty concerns. “The government can replace some of the lost aggregate demand and limit the negative impacts of a recession on individuals and businesses with the use of fiscal stimulus by increasing government spending, decreasing tax revenue, or a combination of the two” (Weinstock, 2020). The government institutes either expansionary or restrictive policy practices depending on if the economy is leaning more towards inflation or a recession.  For instance, if inflation is a risk to the economy reducing spending and increasing taxes would be the suggestion from the government based on restrictive policy. However, if the economy is not reaching its full potential increasing government expenditures and reducing taxes would be helpful to promote expansionary policy (Gwartney et al, 2018).

Expansionary policy has obvious benefits because its helping to stimulate spending, but this also further increases the government’s budget deficit because of having to borrow money to fund the stimulus. “There is a limited supply of loanable funds to borrow from and If the government starts to borrow a larger portion of this pool of savings, it increases the demand for these funds; as demand for loanable funds increases, without an increase in the supply, the price to borrow (also known as interest rates) increases” (Weinstock, 2020). Fiscal policy can be complex to strategize because of the volatility of the economy; it is hard to provide an accurate forecast for the economy when there are so many unknown factors, and unpredictability.

Part Two:

The Paycheck Protection Program is an example of an expansionary policy implemented during COVID-19 relief to assist small businesses maintain their workers during the pandemic.  This program was backed up by the small business administration or SBA and incentivized businesses to keep their employees on payroll or seek to rehire laid-off employees. Implementing PPP Loans allowed small businesses to keep their doors open and those employees to be taken out of unemployment counts overall improving the outlook of the economy. This was a major political influence because policymakers realized that those working in small business markets were the hardest hit during the COVID-19 pandemic and experienced higher rates of unemployment and shutting down.

Question 3 (Mandeep)

The United States national debt grows continuously, increasing from 13.5 trillion in 2010 to 28.5 trillion currently (US Debt Clock, nd). Even though the national debt has greatly increased over the past decades, it remains a minor issue that one should get concerned about. The United States has the most nourishing economy and the biggest GDP in the whole world. Therefore, things like budget debt are what one should worry about because they are more important. Also, the federal debt doesn't have to be paid back compared to the private debt that must be repaid.

Additionally, the treasury can access businesses and individuals in the economy during the repayment period through restrictive fiscal policies. This acts as security and allows the government to borrow at very low interest rates. However, government borrowing and expenditure is also very important. The government may not receive bailouts from other countries if the debt grows to huge amounts. Besides, the government may resort to confiscating the savings of individuals for debt repayment.

John Tamny view on the national debt

            John Tamny thinks the national debt to be an irrelevant number because it doesn’t matter. The opinion relies on the concept that the federal treasury will always have permanent and steady access to cash flows in the economy. Tamny holds that the government should reduce its payments to cut its national debt through investing such capital in risky and transformative concepts (Tanmy, 2015). To me, the perception of Tanmy (2015), oversimplifies the difficult elements of the national debt and government expenditure. Excess government expenditure during periods of harsh economic conditions contradicts Keynesian economics. In the aftermath of the 2008 economic crisis, there has been relative stagnation in the economy of the United States. The common approach available for balancing the federal budget deficits has been through borrowing.

A good illustration can be the incident that happened when the government of Obama released an eight hundred billion U.S dollars stimulus plan in the aftermath of the 2008 economic crisis. During this time, the national debt increased to around 10% of the GDP, which had small effects on unemployment. Unfortunately, though, the viewpoint of Tamny on the national debt is not good since excess government expenditure coupled with permanent and recurrent reduces the money supply in the economy hence a hindrance to growth and investments.

Question 4 (Andre D)

The National debt is vital since the higher the debt, the more we have to pay.  The debt moves every second due to interest, along with how the debt is created.  The debt can be measured in trillions of dollars; it is usually measured as a percentage of GDP (Gross Domestic Product)], and the debt to GDP ratio.  One of the topics that come up regarding government spending is to keep the debt manageable since they don't want to leave a massive debt on the next generation.  The topic or statement will stay the same since the national debt grows every second.  Since the National Debt is a measurement of how much the government owes its creditors.  

In the early '90s, President Clinton had gained a surplus while in office that helped manage the National debt.  Some would say the economy was at its best with job creation, low unemployment, and low government spending. Unfortunately, one of the ways the debt rises is War.  Our national debt has been increased due to the terrorist war overseas that lasted over 20 years.  For one thing, GDP is tough to measure accurately. It's also too complex. Finally, the national debt is not paid back with GDP but with tax revenues (although there is a correlation between the two). Comparing the national debt level to GDP is akin to a person reaching the amount of their debt concerning the value of the goods or services that they produce for their employer in a given year.

I agree with John Tamny when it comes to the federal deficits doesn't matter, but federal spending does.  I also believe that spending is essential for specific programs, but we need to keep an eye on how much we spend without getting anything in return.  Once we fix the tax crisis with the wealth, we would have a substantial amount of money to balance the deficit.  One of the most disheartening subjects in America's history is that we are a wealthy nation, but we don't support our citizens.  The homeless problem is getting out of hand, and it's a crisis within itself.