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Published: Oct 23, 2024
The coronavirus pandemic outbreak has negatively impacted the economic performance of most nations around the world. Additionally, this is chiefly because the viral outbreak was an unexpected occurrence that forced governments to adopt urgent strategies focused on preserving their economic stabilities at the peak of the pandemic. In the United States, the aftermath of the pandemic outbreak elevated the levels of inflation and unemployment, and to a large extent contributed to a substantial fall in the performance of the nation’s economy. Adopting the expansionary fiscal policy will, however, aid the Federal government in its path to economic development through elevating the scale of government spending, minimizing unemployment rates, reducing taxes, and enhancing the scale of government investments.
Image 1: Graph illustrating the effect of an expansionary fiscal policy on the aggregate demand recorded in a nation’s economy. The image was self-developed.
Explanation: Based on the graph, when the expansionary policy is implemented, it shifts the aggregate demand (AD) curve towards the right side. Additionally, this means that the policy boosts the aggregate demand in a nation and in turn, elevates the output of goods produced in a nation, as well as the level of employment in an economy. Further, through expansionary policy, a government elevates the level of spending recorded in the economy and it also reduces the volume of taxes in the nation.
The adoption of the expansionary fiscal policy in the United States will to a large extent aid in facilitating the overall growth and development of the nation’s economy in the oncoming financial years. Particularly, that is because of the stated policy aids in reducing the level of taxes imposed by a government in a nation while elevating the volume of government spending recorded in a nation so as to improve an economy (Middleton, 2018, Phuc Canh, 2018).
Furthermore, the effectiveness of the stated policy will be illustrated via its multiplier effect. Additionally, the multiplier effect leads to economic stimulation by increasing employment, investment as well as consumption levels recorded in a nation. In such a case, a government can increase its volume of expenditure while at the same substantially lower the volume of taxes imposed on ventures and products in the nation. Subsequently, reduced taxes will result in an elevated amount of disposable income available to public members, which is a phenomenon that will encourage economic growth in the nation.
Adopting the stated fiscal policy will also increase the scale of government investments recorded in the nation. In this context, an expansionary fiscal policy will enable the government to indulge in more stimulus spending as well as to relax its unemployment insurance eligibility rules. In this case, surplus spending by the Federal government will help in reviving the downsized entities in the nation, following the economic hurdles brought about by the coronavirus pandemic in the past months of this year. Furthermore, an expansionary fiscal policy in the United States will improve the unemployment level recorded in the nation (Afonso & Sousa, 2011). Additionally, this will be particularly important in aiding the millions of persons in the nation who were laid off following massive downsize among small scale businesses in the nation, due to the negative effects of the pandemic.
Nevertheless, due to the stated merits of the expansionary fiscal policy like government investments, more job opportunities for the public will be available in the nation. Subsequently, the available disposable income among the public members will elevate the level of national spending by the public, which will also essential in promoting the nation’s economic growth. The aggregated demand for various household products like groceries, furniture, clothes as well as other items will also elevate. Moreover, this will in turn help small and medium-sized entities in the nation to grow, especially those that were adversely affected by the pandemic since its outbreak that started late last year.
It is plausible that the adoption of an expansionary fiscal policy will have a fundamental role in enhancing the optimum recovery of the United States economy. In this case, increase spending levels by the public members will enable small and medium-sized businesses in the nation to recover. Additionally, that is mainly the business entities that had negatively been impacted by the coronavirus outbreak in the nation. Moreover, through the adoption of the stated fiscal policy, the public members will have a higher volume of disposable income, which is a phenomenon that will promote economic growth.
Conclusion
In conclusion, adopting the expansionary fiscal policy will aid the Federal government in its path to economic development. Additionally, that is through elevating the scale of government spending, minimizing unemployment rates, reducing taxes as well as enhancing the scale of government investments. In this context, the effectiveness of the expansionary fiscal policy will be manifested via its multiplier effect. Additionally, the multiplier effect leads to economic stimulation by increasing employment, investment as well as consumption levels recorded in a nation. Ultimately, the expansionary fiscal policy will significantly reduce the unemployment levels recorded in the United States, especially among millions of persons who were laid off following a massive downsize among small scale businesses after the pandemic outbreak.
References
Afonso, A., & Sousa, R. M. (2011). The macroeconomic effects of fiscal policy. Applied Economics, 44(34), 4439-4454. https://doi.org/10.1080/00036846.2011.591732
Middleton, R. (2012). Can contractionary fiscal policy be expansionary?: Consolidation, sustainability, and fiscal policy impact in Britain in the 1930s. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2122320
Phuc Canh, N. (2018). The effectiveness of fiscal policy: Contributions from institutions and external debts. Journal of Asian Business and Economic Studies, 25(1), 50-
66. https://doi.org/10.1108/jabes-05-2018-0009
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