ECO372_Week5Discussion_post1_2023

During a recession a fiscal policy has limitations, but the most limiting factor is probably

the recognition lag. This is a lag between when action is needed for the economy but is

recognized at a later point in time. A fiscal policy will have less effect because of this lag.

There is also an administrative lag which occurs when the action is required but it is then

implemented at a later time during the recession. During the recession around COVID-19

the government spent a lot of money in the healthcare sector on buildings and equipment

and other medical infrastructure in order to fight off the pandemic. The government also

spent a large amount of funds on subsidies for the American people to survive and afford

their current standard of living while the nation shut down. This was a major difference

conditions. In the past, our government has used expansionary fiscal policy to help bring

our economy up. Expansionary fiscal policy includes tax cuts, transfer payments, rebates,

and increased government spending on projects such as infrastructure improvements.

During the covid pandemic, our government spent an insane amount of money early in the

pandemic to help keep people whole. We received multiple stimilus checks along with a lot

of government aid for small business and schools. Most kids received free breakfast and

lunch each day along with an EBT card for their other daily food needs. People's student

loans were forgiven amongst a lot of other debt. Fiscal policy is known for the government

to present the economy with tax cuts and spending in a discretionary manner. The fiscal

policy used in previous recessionary periods is known as expansionary fiscal policy. The

expansionary fiscal policy is what the government use to present to the economy the current

conditions. The United States had a large spending scale in the beginning of the pandemic.

According to an article the spending was 50 percent more than the United Kingdom. It is

different with a pandemic recession and a normal recession being that they require different

policy response. The pandemic is to aimed towards those who are in need rather than

increasing aggregate demand. Businesses whether small or big were able to get help to keep

their company in good standing. Unfortunately, there are always bad apples in a bunch. The

bad apples are the ones that can make the help hard to get in the future. I read that people

were getting loans illegally and some getting loans without the intention to repay the loan

businesses going. Fiscal policy also saved the United States during the Great Depression.

Monetary policy is a tool for the Central Bank which is the Federal Reserve.

Currently, the Federal Reserve is in the process of increasing interest rates to put the brakes

on inflation as we try to recover from the COVID-19 mandates, shut-downs, and

restrictions.

effects on the economy. In the previous recession, the government has been using the

expansionary fiscal policy. The government uses this fiscal policy to leverage tax policies

and define how the economy spends them. The expansionary fiscal policy used in the last

recession mainly allowed the government to employ various tax cuts. With this approach,

the government increases discretionary spending in some way. During Covid 19 recession,

the fiscal policy was completely different from the normal recession. There was enormous

spending, especially early in the pandemic, with initial debt loads being normal. The

primary fiscal policy was to help the population that was affected rather than working on

increasing the aggregate demand as it is in other recessions. Unlike different fiscal policy,

this kind of response was more about improving social security rather than growing broad

which they did not have to pay back, a 1,200 stimulus payment (cares act) for Americans

and a bunch of various different breaks. In Illinois the state government provided additional

unemployment money through federal funding. During the recession, food production and

auto and other manufacturing had been hit the toughest in which as although with Covid 19

the same time. During Covid 19 thousands if not millions of Americans lost their jobs while

smaller businesses closed, had to lay off all employees and could not recover being forced

to close for business. While big businesses remained opened during the covid-19 with

restrictions. As far as previous recessions, by .Influences from the federal government to

the economy is usually through giving tax breaks and increasing the authorities' spending

capacity which was known as Expansionary monetary policy . Also throughout the previous

policy would allow for an increased supply of money to reduce interest rates, and increase

investments, while also increasing government spending to raise the real GDP.During the

COVID-19 recession, the government had to deal with two major issues. The first was

quarantining it's population, to reduce the spread of the virus through close contact, and

second, limiting those deemed essential to continue with employment in person. There were

many factors of the pandemic that affected the recession, such as shortages of goods, and a

sharp decline in international trade, but the factors affecting employment and quarantining

the purchasing population were the most major factors under government control. In

previous recessions, the government would actively look to increase employment to full

natural employment. However, due to the fact that may people were quarantined in their

homes, full employment was drastically reduced across the country, and could not be

increased until all fears of the virus spreading could be alleviated. Another major difference

with previous recessions was the quarantined consumer population. The government

increased spending by giving multiple stimulus funds to consumers, however, since most of

the supply chain was broken, food shortages were prevalent, and many businesses were still

closed, the stimulus did not have nearly as much affect as could be expected in previous

recessions. The fiscal policy during the previous recessionary period that are expansionary

fiscal policy ,cause the expansionary fiscal policy will allows the government to influence

the economic conditions by doing tax cuts and increases for government spending an but

really caught my attention so I decided to share.The economy was in the longest expansion

on record before the COVID-19 pandemic, but a sharp decline in economic activity is now

inevitable, with unemployment insurance claims skyrocketing and many forecasters saying

that the economy has already entered a recession. The last recession — the Great Recession

associated with a recession. It left key lessons for policymakers, who should now use a

wide array of available policy tools to keep this and future downturns as short and shallow

as possible. Fiscal Policy

The US Legislative Branch (Congress and Senate) define, implement, and govern US fiscal

policy which is the national expenditures and taxation employed to stabilize the economy

(https://www.britannica.com/topic/fiscal-policy)

Government expenditures (G) which are all Federal, State, and Local government purchases

from paper clips to aircraft carriers.

Taxation (T) which is imposition of compulsory levies on individuals or entities by

governments. Taxes are levied in almost every country of the world, primarily to raise

revenue for government expenditures, as well as to stabilize an economy

(https://www.britannica.com/topic/taxation)

Expansionary Fiscal policy is implemented during a contraction on the business cycle.

Expansionary Fiscal policy includes increasing G and/or decreasing T.

availability and cost of money and credit. Because the expectations of market participants

play an important role in determining prices and economic growth, monetary policy can

also be defined to include the directives, policies, statements, and actions of the Fed that

influence future perceptions. However, the Feds cannot control the inflation directly;

instead, indirectly by affecting the money supply, it is theorized that monetary policy can

establish ranges for inflation, unemployment, interest rates, and economic growth. The

economic growth without inflation. If there is an indication that inflation is threatening our

purchasing power, the Fed may need to slow the growth of the money supply. It does this

by using three tools—the discount rate, reserve requirements and, most important, open

market operations.

Monetary Policy Tools

Open market operation: This is the tool that the Federal Reserve uses the most frequently

(on a daily basis) monetary policy tool to involves the buying and selling of government

securities in order to influence short-term interest rates and the growth of the money and

credit aggregates. Whenever an increase in the growth rate of the money supply and credit

is needed, or if downward pressure on short-term interest rates is desired, the Fed sends

securities to brokers and dealers electronically and takes payment by debiting the accounts

of banks with which the brokers and dealers do business. These reserves leave the banking

system, thereby reducing the money supply and curtailing the expansion of credit.

This is done on a daily basis and makes incremental changes to the money supply. In a

sense, open market operations tweak the money supply.

bank's vaults or at the closest Federal Reserve Bank. This tool is used to maintain the

minimum amount of physical funds in their reserve.

extreme economic situation.

money supply by decreasing the reserve requirement allowing banks and other financial

institutions to loan out a greater fraction of the deposits.

Fed will decrease the money supply by increasing the reserve requirement restricting even

more the amount of money banks and other financial institutions are allowed to loan out.

Discount Rate: interest rate charged commercial banks and other depository institutions for

loans that are received by the Federal Reserve Banks. This tool is important because it is a

visible announcement of change in the Fed's monetary policy and it will give insight to the

Fed's plans.

Like the reserve requirement, the discount rate changes are not made very often at all. This

investment.

at a healthy, sustainable level.

Inflation is caused by the demand side or the supply side.

Two Causes of Inflation

Demand curve. In small increments, it demonstrates creeping inflation which indicates a

healthy, growing economy. In larger increments, it may demonstrate galloping or

hyperinflation which are destabilizing to the economy.

Also, this type of inflation is demonstrated by the expansionary phase on the business cycle.

This type of inflation, if considered creeping inflation, is an indicator of a healthy, growing

economy due to the increases in price levels, decreases in unemployment, and the increases

in GDP.

If this type of inflation becomes a problem, it can be resolved using traditional

contractionary fiscal and/or monetary policies.

Cost-Push Inflation is a general increase in the overall price level due to a decrease in

aggregate supply.