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Duringj aj recessionj aj fiscalj policyj hasj limitations,j butj thej mostj limitingj factorj isj probablyj thej
recognitionj lag.j Thisj isj aj lagj betweenj whenj actionj isj neededj forj thej economyj butj isj recognizedj
atj aj laterj pointj inj time.j Aj fiscalj policyj willj havej lessj effectj becausej ofj thisj lag.j Therej isj alsoj anj
administrativej lagj whichj occursj whenj thej actionj isj requiredj butj itj isj thenj implementedj atj aj
laterj timej duringj thej recession.j Duringj thej recessionj aroundj COVID-19j thej governmentj spentj
aj lotj ofj moneyj inj thej healthcarej sectorj onj buildingsj andj equipmentj andj otherj medicalj
infrastructurej inj orderj toj fightj offj thej pandemic.j Thej governmentj alsoj spentj aj largej amountj ofj
fundsj onj subsidiesj forj thej Americanj peoplej toj survivej andj affordj theirj currentj standardj ofj
livingj whilej thej nationj shutj down.j Thisj wasj aj majorj differencej betweenj thej COVID-19j
recessionj andj previousj recessionsj inj Americanj history.j Becausej thej nationj wasj atj aj shutdownj
andj thej governmentj spentj soj muchj moneyj onj thej publicj thej governmentj spendingj wasj
exponential.j Enteringj previousj recessionsj thej governmentj wouldj subsidizej Thej costj ofj manyj
goodsj inj orderj toj ensurej thej publicj couldj affordj themj butj thisj latestj recessionj wasj aboutj takingj
carej ofj thej physicalj andj mentalj healthj ofj thej nation.j Fiscalj policyj refersj toj thej usej ofj
governmentj spendingj andj taxj policiesj toj influencej economicj conditions.j Inj thej past,j ourj
governmentj hasj usedj expansionaryj fiscalj policyj toj helpj bringj ourj economyj up.j Expansionaryj
fiscalj policyj includesj taxj cuts,j transferj payments,j rebates,j andj increasedj governmentj spendingj
onj projectsj suchj asj infrastructurej improvements.j Duringj thej covidj pandemic,j ourj governmentj
spentj anj insanej amountj ofj moneyj earlyj inj thej pandemicj toj helpj keepj peoplej whole.j Wej
receivedj multiplej stimilusj checksj alongj withj aj lotj ofj governmentj aidj forj smallj businessj andj
schools.j Mostj kidsj receivedj freej breakfastj andj lunchj eachj dayj alongj withj anj EBTj cardj forj
theirj otherj dailyj foodj needs.j People'sj studentj loansj werej forgivenj amongstj aj lotj ofj otherj debt.j
Fiscalj policyj isj knownj forj thej governmentj toj presentj thej economyj withj taxj cutsj andj spendingj
inj aj discretionaryj manner.j Thej fiscalj policyj usedj inj previousj recessionaryj periodsj isj knownj asj
expansionaryj fiscalj policy.j Thej expansionaryj fiscalj policyj isj whatj thej governmentj usej toj
presentj toj thej economyj thej currentj conditions.j Thej Unitedj Statesj hadj aj largej spendingj scalej inj
thej beginningj ofj thej pandemic.j Accordingj toj anj articlej thej spendingj wasj 50j percentj morej thanj
thej Unitedj Kingdom.j Itj isj differentj withj aj pandemicj recessionj andj aj normalj recessionj beingj
thatj theyj requirej differentj policyj response.j Thej pandemicj isj toj aimedj towardsj thosej whoj arej inj
needj ratherj thanj increasingj aggregatej demand.j Businessesj whetherj smallj orj bigj werej ablej toj
getj helpj toj keepj theirj companyj inj goodj standing.j Unfortunately,j therej arej alwaysj badj applesj inj
aj bunch.j Thej badj applesj arej thej onesj thatj canj makej thej helpj hardj toj getj inj thej future.j Ij readj
thatj peoplej werej gettingj loansj illegallyj andj somej gettingj loansj withoutj thej intentionj toj repayj
thej loanj back.j Fiscalj policyj isj usedj byj thej governmentj toj influencej thej economy.j Thej
governmentj usesj fiscalj policyj toj determinej interestj ratesj andj grossj investment.j Theyj usej itj toj
determinej whatj needsj toj bej donej inj orderj toj fixj thej economyj inj differentj stages.j Whetherj inj aj
recessionj orj atj itsj peak.Duringj Covidj thej governmentj putj outj $5.2j trillionj toj helpj keepj thej
economyj going.j Withj soj manyj peoplej losingj jobsj andj businessesj closingj thej governmentj hadj
toj stepj inj toj helpj usj noj goj broke.j Thej pandemicj stimulusj helpedj keepj familiesj andj businessesj
going.j Fiscalj policyj alsoj savedj thej Unitedj Statesj duringj thej Greatj Depression.j Monetaryj
policyj isj aj toolj forj thej Centralj Bankj whichj isj thej Federalj Reserve.
Whenj thej economyj entersj aj contraction,j thej Federalj Reservej tendsj toj respondj withj
expansionaryj monetaryj policyj -j aj decreasej inj interestj ratesj usingj thej threej monetaryj policyj
tools.
Duringj thej 1930s,j 1987,j andj 2008,j thej realj interestj ratej decreasedj toj almostj zeroj andj inj somej
casesj negativej soj holdingj moneyj wasj notj attractive.
Currently,j thej Federalj Reservej isj inj thej processj ofj increasingj interestj ratesj toj putj thej brakesj onj
inflationj asj wej tryj toj recoverj fromj thej COVID-19j mandates,j shut-downs,j andj restrictions.
Government,j throughj thej centralj bank,j canj applyj differentj tacticsj toj handlej recessionj andj itsj
effectsj onj thej economy.j Inj thej previousj recession,j thej governmentj hasj beenj usingj thej
expansionaryj fiscalj policy.j Thej governmentj usesj thisj fiscalj policyj toj leveragej taxj policiesj andj
definej howj thej economyj spendsj them.j Thej expansionaryj fiscalj policyj usedj inj thej lastj
recessionj mainlyj allowedj thej governmentj toj employj variousj taxj cuts.j Withj thisj approach,j thej
governmentj increasesj discretionaryj spendingj inj somej way.j Duringj Covidj 19j recession,j thej
fiscalj policyj wasj completelyj differentj fromj thej normalj recession.j Therej wasj enormousj
spending,j especiallyj earlyj inj thej pandemic,j withj initialj debtj loadsj beingj normal.j Thej primaryj
fiscalj policyj wasj toj helpj thej populationj thatj wasj affectedj ratherj thanj workingj onj increasingj
thej aggregatej demandj asj itj isj inj otherj recessions.j Unlikej differentj fiscalj policy,j thisj kindj ofj
responsej wasj morej aboutj improvingj socialj securityj ratherj thanj growingj broadj stimulusj forj thej
organizations.j Thej wasj aj kindj ofj increasedj spending,j especiallyj inj payingj thej frontlinej
workers,j asj wellj asj workingj onj waysj toj slowj thej progressionj ofj thej pandemic,j suchj asj throughj
testingj andj vaccines.j Fiscalj policyj forj thej durationj ofj thej Covidj 19j recessionj duringj Presidentj
Trump'sj presidencyj differsj fromj ordinaryj recessionsj duej toj thej factj Covidj 19j createdj aj forcedj
federalj shutj downj startingj inj Marchj 2020.j Thisj leadj toj aj recessionj goingj forwardj throughoutj
thej yearj andj continuingj intoj nextj year.j Comparedj toj thej everydayj recessionj thej Unitedj Statesj
governmentj decidedj toj goj alongj withj aj morej aggressivej spendingj policyj toj combatj thej Covid-
19j recessionj forj thanj thej 2008j recessionj duringj Obama'sj precedency.j .j Thej governmentj
federalj providedj PPPj loansj forj businessj whichj theyj didj notj havej toj payj back,j aj 1,200j stimulusj
paymentj (caresj act)j forj Americansj andj aj bunchj ofj variousj differentj breaks.j Inj Illinoisj thej statej
governmentj providedj additionalj unemploymentj moneyj throughj federalj funding.j Duringj thej
recession,j foodj productionj andj autoj andj otherj manufacturingj hadj beenj hitj thej toughestj inj
whichj asj althoughj withj Covidj 19j itj affectedj thej entertainmentj (moviej theatersj etc.)j andj
restaurantj hospitalityj industriesj allj atj thej samej time.j Duringj Covidj 19j thousandsj ifj notj
millionsj ofj Americansj lostj theirj jobsj whilej smallerj businessesj closed,j hadj toj layj offj allj
employeesj andj couldj notj recoverj beingj forcedj toj closej forj business.j Whilej bigj businessesj
remainedj openedj duringj thej covid-19j withj restrictions.j Asj farj asj previousj recessions,j byj
.Influencesj fromj thej federalj governmentj toj thej economyj isj usuallyj throughj givingj taxj breaksj
andj increasingj thej authorities'j spendingj capacityj whichj wasj knownj asj Expansionaryj monetaryj
policyj .j Alsoj throughoutj thej previousj eraj thej unemploymentj willj growj andj aj therej isj aj naturalj
decreasej inj earnings.j Duringj previousj recessionaryj durationsj thej economicj policyj thatj hasj
beenj usedj isj thej expansionaryj monetaryj coverage.j Expansionaryj monetaryj policyj canj growj anj
alternatej deficit,j andj acceleratingj inflation.j Inj thej previousj recessionsj thej federalj governmentj
mayj alsoj decreasej taxj feesj orj increasej spendingj toj encouragej stimulatingj thej economyj outj ofj aj
recession.j Typically,j anj expansionaryj fiscalj policyj isj usedj toj recoverj fromj aj recessionaryj
period.j Thisj policyj wouldj allowj forj anj increasedj supplyj ofj moneyj toj reducej interestj rates,j andj
increasej investments,j whilej alsoj increasingj governmentj spendingj toj raisej thej realj
GDP.Duringj thej COVID-19j recession,j thej governmentj hadj toj dealj withj twoj majorj issues.j Thej
firstj wasj quarantiningj it'sj population,j toj reducej thej spreadj ofj thej virusj throughj closej contact,j
andj second,j limitingj thosej deemedj essentialj toj continuej withj employmentj inj person.j Therej
werej manyj factorsj ofj thej pandemicj thatj affectedj thej recession,j suchj asj shortagesj ofj goods,j andj
aj sharpj declinej inj internationalj trade,j butj thej factorsj affectingj employmentj andj quarantiningj
thej purchasingj populationj werej thej mostj majorj factorsj underj governmentj control.j Inj previousj
recessions,j thej governmentj wouldj activelyj lookj toj increasej employmentj toj fullj naturalj
employment.j However,j duej toj thej factj thatj mayj peoplej werej quarantinedj inj theirj homes,j fullj
employmentj wasj drasticallyj reducedj acrossj thej country,j andj couldj notj bej increasedj untilj allj
fearsj ofj thej virusj spreadingj couldj bej alleviated.j Anotherj majorj differencej withj previousj
recessionsj wasj thej quarantinedj consumerj population.j Thej governmentj increasedj spendingj byj
givingj multiplej stimulusj fundsj toj consumers,j however,j sincej mostj ofj thej supplyj chainj wasj
broken,j foodj shortagesj werej prevalent,j andj manyj businessesj werej stillj closed,j thej stimulusj didj
notj havej nearlyj asj muchj affectj asj couldj bej expectedj inj previousj recessions.j Thej fiscalj policyj
duringj thej previousj recessionaryj periodj thatj arej expansionaryj fiscalj policyj ,causej thej
expansionaryj fiscalj policyj willj allowsj thej governmentj toj influencej thej economicj conditionsj
byj doingj taxj cutsj andj increasesj forj governmentj spendingj anj butj theyj arej threej mainj typesj ofj
fiscalj policyj whichj arej neutralj policyj expansionary,j contractionaryj andj cuzj thej governmentj
Mayj lowerj taxj racesj arej increasedj toj spendingj toj encouragej demandj economicj causej itj mayj
raisej ratesj orj cutj spendingj toj slowj downj thej economy,Thej twoj majorj examplesj ofj
expansionaryj fiscalj policyj arej taxj cutsj andj increasedj governmentj spending.j Bothj ofj thesej
policiesj arej intendedj toj increasej aggregatej demandj whilej contributingj toj deficitsj orj drawingj
downj budgetj surpluses.j Ij foundj anj examplej thatj reallyj caughtj myj attentionj soj Ij decidedj toj
share.Thej economyj wasj inj thej longestj expansionj onj recordj beforej thej COVID-19j pandemic,j
butj aj sharpj declinej inj economicj activityj isj nowj inevitable,j withj unemploymentj insurancej
claimsj skyrocketingj andj manyj forecastersj sayingj thatj thej economyj hasj alreadyj enteredj aj
recession.j Thej lastj recessionj j thej Greatj Recessionj j wasj aj starkj reminderj ofj thej needj toj
lessenj thej humanj hardshipj andj economicj dislocationj associatedj withj aj recession.j Itj leftj keyj
lessonsj forj policymakers,j whoj shouldj nowj usej aj widej arrayj ofj availablej policyj toolsj toj keepj
thisj andj futurej downturnsj asj shortj andj shallowj asj possible.j Fiscalj Policy
Thej USj Legislativej Branchj (Congressj andj Senate)j define,j implement,j andj governj USj fiscalj
policyj whichj isj thej nationalj expendituresj andj taxationj employedj toj stabilizej thej economyj
(https://www.britannica.com/topic/fiscal-policy)
Fiscalj Policyj Tools
Governmentj expendituresj (G)j whichj arej allj Federal,j State,j andj Localj governmentj purchasesj
fromj paperj clipsj toj aircraftj carriers.
Taxationj (T)j whichj isj impositionj ofj compulsoryj leviesj onj individualsj orj entitiesj byj
governments.j Taxesj arej leviedj inj almostj everyj countryj ofj thej world,j primarilyj toj raisej revenuej
forj governmentj expenditures,j asj wellj asj toj stabilizej anj economyj
(https://www.britannica.com/topic/taxation)
Expansionaryj Fiscalj policyj isj implementedj duringj aj contractionj onj thej businessj cycle.
Expansionaryj Fiscalj policyj includesj increasingj Gj and/orj decreasingj T.
Thisj allowsj Aggregatej Demandj toj shiftj toj thej rightj andj movej anj economyj towardj growth.
Contractionaryj Fiscalj policyj isj implementedj duringj anj expansionj onj thej businessj cycle.
Contractionaryj Fiscalj policyj includesj decreasingj Gj and/orj increasingj T.
Thisj allowsj Aggregatej Demandj toj shiftj toj thej leftj andj minimizej thej economy’sj overheating.
Monetaryj Policy
Thej Federalj Reservej (thej Fed)j definesj monetaryj policyj asj itsj actionsj toj influencej thej
availabilityj andj costj ofj moneyj andj credit.j Becausej thej expectationsj ofj marketj participantsj playj
anj importantj rolej inj determiningj pricesj andj economicj growth,j monetaryj policyj canj alsoj bej
definedj toj includej thej directives,j policies,j statements,j andj actionsj ofj thej Fedj thatj influencej
futurej perceptions.j However,j thej Fedsj cannotj controlj thej inflationj directly;j instead,j indirectlyj
byj affectingj thej moneyj supply,j itj isj theorizedj thatj monetaryj policyj canj establishj rangesj forj
inflation,j unemployment,j interestj rates,j andj economicj growth.j Thej Fed’sj primaryj missionj isj
toj ensurej thatj enoughj moneyj andj creditj arej availablej toj sustainj economicj growthj withoutj
inflation.j Ifj therej isj anj indicationj thatj inflationj isj threateningj ourj purchasingj power,j thej Fedj
mayj needj toj slowj thej growthj ofj thej moneyj supply.j Itj doesj thisj byj usingj threej toolsthej
discountj rate,j reservej requirementsj and,j mostj important,j openj marketj operations.
Monetaryj Policyj Tools
Openj marketj operation:j Thisj isj thej toolj thatj thej Federalj Reservej usesj thej mostj frequentlyj (onj aj
dailyj basis)j monetaryj policyj toolj toj involvesj thej buyingj andj sellingj ofj governmentj securitiesj
inj orderj toj influencej short-termj interestj ratesj andj thej growthj ofj thej moneyj andj creditj
aggregates.j Wheneverj anj increasej inj thej growthj ratej ofj thej moneyj supplyj andj creditj isj needed,j
orj ifj downwardj pressurej onj short-termj interestj ratesj isj desired,j thej Fedj sendsj securitiesj toj
brokersj andj dealersj electronicallyj andj takesj paymentj byj debitingj thej accountsj ofj banksj withj
whichj thej brokersj andj dealersj doj business.j Thesej reservesj leavej thej bankingj system,j therebyj
reducingj thej moneyj supplyj andj curtailingj thej expansionj ofj credit.
Toj stimulatej thej economyj thatj isj experiencingj aj contraction,j thej Fedj willj increasej thej moneyj
supplyj byj buyingj securities.
Toj slowj downj anj overheatingj economyj thatj isj experiencingj anj inflationaryj expansion,j thej Fedj
willj decreasej thej moneyj supplyj byj sellingj securities.
Thisj isj donej onj aj dailyj basisj andj makesj incrementalj changesj toj thej moneyj supply.j Inj aj sense,j
openj marketj operationsj tweakj thej moneyj supply.
Reservej Requirements:j Arej thej requirementsj regardingj thej amountj ofj fundsj thatj thej bankj
mustj holdj inj reservej againstj depositsj madej byj theirj customers.j Thisj moneyj mustj bej inj thej
bank'sj vaultsj orj atj thej closestj Federalj Reservej Bank.j Thisj toolj isj usedj toj maintainj thej
minimumj amountj ofj physicalj fundsj inj theirj reserve.
Reservej requirementj changesj arej notj madej veryj oftenj atj all.j Theyj arej aj policyj usedj inj anj
extremej economicj situation.
Toj stimulatej thej economyj thatj isj experiencingj aj contraction,j thej Fedj willj increasej thej moneyj
supplyj byj decreasingj thej reservej requirementj allowingj banksj andj otherj financialj institutionsj
toj loanj outj aj greaterj fractionj ofj thej deposits.
Toj slowj downj anj overheatingj economyj thatj isj experiencingj anj inflationaryj expansion,j thej Fedj
willj decreasej thej moneyj supplyj byj increasingj thej reservej requirementj restrictingj evenj morej
thej amountj ofj moneyj banksj andj otherj financialj institutionsj arej allowedj toj loanj out.
Discountj Rate:j interestj ratej chargedj commercialj banksj andj otherj depositoryj institutionsj forj
loansj thatj arej receivedj byj thej Federalj Reservej Banks.j Thisj toolj isj importantj becausej itj isj aj
visiblej announcementj ofj changej inj thej Fed'sj monetaryj policyj andj itj willj givej insightj toj thej
Fed'sj plans.
Likej thej reservej requirement,j thej discountj ratej changesj arej notj madej veryj oftenj atj all.j Thisj
policyj isj notj usedj veryj often;j however,j thej Fedj isj increasingj thej discountj ratej today.
Toj stimulatej thej economyj thatj isj experiencingj aj contraction,j thej Fedj willj decreasej thej
discountj ratej whichj makesj borrowingj forj consumptionj andj investmentj friendlier.
Toj slowj downj anj overheatingj economyj thatj isj experiencingj anj inflationaryj expansion,j thej Fedj
willj increasej thej discountj ratej makingj savingsj morej attractivej thanj consumptionj andj
investment.
Thej Federalj Reservej focusesj onj influencingj interestj ratesj andj keepingj pricej levelj increasesj atj
aj healthy,j sustainablej level.
Inflationj isj causedj byj thej demandj sidej orj thej supplyj side.
Twoj Causesj ofj Inflation
Demand-Pullj Inflationj isj aj generalj increasej inj thej overallj pricej levelj duej toj anj increasej inj
aggregatej demand.
Thisj typej ofj inflationj isj demonstratedj byj anj outwardj shiftj toj thej rightj ofj thej Aggregatej Demandj
curve.j Inj smallj increments,j itj demonstratesj creepingj inflationj whichj indicatesj aj healthy,j
growingj economy.j Inj largerj increments,j itj mayj demonstratej gallopingj orj hyperinflationj whichj
arej destabilizingj toj thej economy.
Also,j thisj typej ofj inflationj isj demonstratedj byj thej expansionaryj phasej onj thej businessj cycle.
Thisj typej ofj inflation,j ifj consideredj creepingj inflation,j isj anj indicatorj ofj aj healthy,j growingj
economyj duej toj thej increasesj inj pricej levels,j decreasesj inj unemployment,j andj thej increasesj inj
GDP.
Ifj thisj typej ofj inflationj becomesj aj problem,j itj canj bej resolvedj usingj traditionalj contractionaryj
fiscalj and/orj monetaryj policies.
Cost-Pushj Inflationj isj aj generalj increasej inj thej overallj pricej levelj duej toj aj decreasej inj aggregatej
supply.
Thisj typej ofj inflationj isj demonstratedj byj anj inwardj shiftj toj thej leftj ofj thej Aggregatej Supplyj
curvej duej toj anj increasej inj pricej and/orj decreasej inj availabilityj ofj aj significantj inputj (resource)j
intoj thej productionj process.
Thisj typej ofj inflationj cannotj bej demonstratedj onj thej businessj cycle.
Thisj typej ofj inflationj isj anj indicatorj ofj anj economyj experiencingj lossj andj economicj challengesj
thatj cannotj bej resolvedj withj traditionalj fiscalj and/orj monetaryj expansionaryj orj contractionaryj
policiesj duej toj thej increasesj inj pricej levels,j increasesj inj unemployment,j andj thej decreasesj inj
GDP.
Thisj typej ofj inflationj cannotj bej resolvedj usingj traditionalj fiscalj andj monetaryj policyj tools.j
Cost-Pushj Inflationj canj resultj inj stagflationj inj whichj thej governmentj mustj stepj outsidej thej
realmj ofj economicj policiesj andj usej diplomacy,j politicalj policies,j militaryj actions,j andj otherj
resolutions.
http://useconomy.about.com/od/inflationfaq/tp/Types-of-Inflation.htm
Whatj typej ofj inflationj isj thej USj economyj experiencingj atj thisj time?
Whatj fiscalj policyj isj feasiblej toj addressj thej inflationj issuej atj thisj time?
Whatj monetaryj policyj isj feasiblej toj addressj thej inflationj issuej atj thisj time?
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