economics 2 part
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UnitVIAssignment.docx2
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Unit VI Assignment
Cecilia Williamson
Columbia Southern University
Impacts of expansionary and contractionary fiscal policy on the Smartwatch Industry
The current fiscal policy of the Federal Government is focused on reducing the budget deficit and increasing national savings. This is being done through the implementation of austerity measures such as reduced government spending, and reduced government borrowing. This policy has had an overall contractionary effect on the economy and may dampen demand for consumer products (Romer,2021). The current status of the Federal Government budget and fiscal policy will have a significant impact on the smartwatch industry over the next two years. Expansionary fiscal policy, which is when the government increases spending to stimulate the economy, will likely have a positive impact on the industry. Increased government spending can lead to increased consumer demand, which can lead to increased sales of smartwatches and other related products. On the other hand, contractionary fiscal policy, which is when the government decreases spending to slow economic growth, can harm the industry. Lower government spending can lead to decreased consumer demand, which can result in fewer sales of smartwatches and related products.
In the short-term, contractionary fiscal policy will suppress demand for smartwatches and harm the industry. This is because fewer people will have the disposable income to purchase these products, thus reducing sales and profits. Additionally, higher taxes may lead to smartwatch companies having to pay more taxes and reduce their profits. In the long term, however, expansionary fiscal policies such as increased government spending and tax cuts could have an impact on the industry. Expansionary fiscal policy is intended to stimulate economic activity and increase consumer demand, which can lead to increased sales and profits for smartwatch companies. For example, increased public spending on infrastructure or research and development could lead to increased demand for smartwatch products. Additionally, tax cuts could lead to greater disposable income for consumers, which could lead to increased demand for smartwatches.
Fiscal policy, recessionary, and expansionary gaps’ impacts on the smartwatch industry
Fiscal policy is how the government uses its spending and taxation powers to influence the economy. It can be used to close a recessionary gap, which is the gap between what the economy is producing and what it could potentially produce. This occurs when the economy is at less than full employment and the government can close this gap by increasing its spending or cutting taxes. On the other hand, fiscal policy can also be used to close an expansionary gap, which is the gap between what the economy is producing and what it could produce at full employment. This occurs when the economy is operating above full employment and the government can close this gap by decreasing its spending or raising taxes.
The current status of the Federal Government's budget and fiscal policy will have a significant impact on the smartwatch industry over the next two years. In the event of a recessionary gap, the Federal Government may choose to use an expansionary fiscal policy to stimulate the economy. This could involve cutting taxes, increasing government spending, or both. This would increase consumer demand, which would be beneficial to the smartwatch industry as consumers would have more disposable income to purchase their products. Additionally, the government may also choose to use targeted tax cuts or subsidies to encourage investment in the smartwatch industry, resulting in increased innovation and growth. On the other hand, if the Federal Government is attempting to close an expansionary gap, it may choose to use a contractionary fiscal policy to reduce economic growth (Mankiw,2020). This could involve raising taxes, decreasing government spending, or both. This could harm the smartwatch industry, as consumers would have less disposable income to purchase their products. Furthermore, the government may also choose to use targeted tax increases or regulations to discourage investment in the smartwatch industry, resulting in decreased innovation and growth.
The rationale for budget deficit
The Federal Government budget reflects the overall economic health of the country. It is determined by several factors, including tax revenue received, spending on programs and services, and the amount of money borrowed through federal debt. The budget deficit is the difference between what the government spends and what it collects in revenue. When the deficit is high, the government must borrow money to cover its expenses, which increases the national debt (Stupak, 2019). This can lead to higher interest rates, making it more expensive for companies to borrow money. This could make it more difficult for companies in the smartwatch industry to finance new investments and research, causing a slowdown in innovation and growth. The rationale for budget deficits can be linked to several economic theories. Keynesian economics argues that government spending can help stimulate economic growth and reduce unemployment during periods of economic difficulty (Tevdovski, et al.,2022). Additionally, Keynesian economists supported the budget deficit by arguing that increased government spending can create jobs, increase consumption, and help reduce unemployment. They also believe that budget deficits can help to reduce inequality by providing additional funds for programs to support lower-income households. More specifically, Keynesian economists argue that budget deficits can help to stabilize the economy by providing a buffer against economic downturns. On the other hand, supply-side economics suggests that reducing taxes can lead to increased economic activity and higher levels of investment in the private sector (Lavoie, 2022). In the case of the Federal Government budget deficit, these theories can be used to explain why the government has chosen to increase spending and reduce taxes to stimulate economic growth.
The current federal government fiscal policy will have a direct impact on the smartwatch industry. The government's budget deficit is a result of increased spending and reduced tax revenue. This means that the government will have to borrow money to fund its operations, leading to an increase in the national debt. This will lead to higher interest rates, which will make it more expensive for businesses to borrow money to fund operations and investments. This could lead to an increase in the cost of production for smartwatch companies, as well as a decrease in their ability to access capital. It is worth noting the smartwatch industry is a unique industry because of the nature of the products produced which are not necessities. As such the demand may not be as high as for the necessities, therefore the demand may further be affected by other macroeconomic factors such as inflation. Therefore, companies in the industry need to pay attention to the current and future fiscal policies to plan accordingly.
References
Boug, P., Cappelen, Å., Jansen, E. S., & Swensen, A. R. (2021). The consumption Euler equation or the Keynesian consumption function? Oxford Bulletin of Economics and Statistics, 83(1), 252-272.
https://onlinelibrary.wiley.com/doi/abs/10.1111/obes.12394
Friedman, M. (2018). Theory of the consumption function. In Theory of the Consumption Function. Princeton university press.
https://www.degruyter.com/document/doi/10.1515/9780691188485/html\
Lavoie, M. (2022). Post-Keynesian Economics. Books.
Mankiw, N. G. (2020). Principles of economics. Cengage Learning.
Mankiw, N. G. (2020). Principles of macroeconomics. Cengage Learning.
Romer, C. D. (2021). The fiscal policy response to the pandemic. Brookings Papers on Economic Activity, 89-110.
https://www.jstor.org/stable/27093821
Stupak, J. M. (2019). Fiscal policy: economic effects. Congressional Research Service, 1-8.
https://www.everycrsreport.com/files/20190516_R45723_cbcdb99cc61a5e56d35ee060e624c41770328945.pdf
Tevdovski, D., Jolakoski, P., & Stojkoski, V. (2022). Determinants of budget deficits: The effects of the COVID-19 crisis. Economic Annals, 67(232), 105-126.
http://www.doiserbia.nb.rs/Article.aspx?id=0013-32642232105T
