Analysis of Discretionary Fiscal Policy

During discretionary fiscal policy the government spends and taxes to change the economy during a particular problem. Both Congress and the president have to take action when they agree that the economy is in need. When they do this they are trying to simulate the economy during a time of recession. Economists thought discretionary fiscal policy would eliminate the instability of the recession, however most had given up on the idea by 1980.

The most noticeable discretionary fiscal policy is the discretionary budget. These are the expenditures calculated in the United States budget that are within the appropriations bills. These are negotiated between Congress and the president each year. This includes almost all the spending in the federal department. For an example, during the Great Depression many unemployed people found jobs through the government. Cooley and Ohanian argued, “The economy did not tank in 1937 because government spending declined. Increases in tax rates, particularly capital income tax rates, and the expansion of unions, were most likely responsible. Unfortunately, these same factors pose a similar threat today.” Numbers had shown that spending declined from the years 1937 to 1938.

By the 1960s, economists were overconfident with discretionary fiscal policy because they thought it would eliminate the instability of the recession. They thought of discretionary fiscal policy as more of a fantasy. The economists believed this idea because in the 1950s, and 1960s they thought Congress would know how to use the desired stimulus to get the economy back to a desired level of RGDP. However they were wrong, since the poor performance during the 1970s the economists have transformed to ardent detractors. The reasons d...

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...mised to repeal tax cuts to the wealthy class, Americans who earn more than 250,000 dollars a year. During his election in 2008 happened a major financial crisis. This financial crisis of fall 2008 was a cause to the worst holiday shopping period in the past forty years. After his election his administration took time to contemplate a fiscal stimulus plan. This plan increased tax cuts, unemployment benefits spending or series of projects, aid to the state and local governments, and much more. The recession ended in June 2009, an less than ten percent of the funds had passed in February 2010.

Citation

Amadeo, K.. N.p.. Web. 5 Feb 2014. .

Auerback, M.. N.p.. Web. 5 Feb 2014. .

Guell, Robert C. "9 Fiscal Policy." Issues in Economics Today. New York, NY: McGraw-Hill/Irwin, 2010. N. pag. Print.