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Fiscal Policy Predictions

Q1)Fiscal Policy Predictions – stimulus with a red-hot economy: What does Keynesian fiscal policy theory predict will happen if a government increases its annual budget deficit when the economy has low unemployment?

Q2)Fiscal Policy Predictions – austerity in recession: What does Keynesian fiscal policy theory predict will happen if a government decreases its annual budget deficit when the economy has high unemployment?

Q3)Favorite Alternative: There are many alternatives to Gross Domestic Product as a measure of our economic well-being. What is your favorite, why? How would that measure’s widespread adoption change policy?

Q4)Data Work with FRED: Go to the website hosted by the Federal Reserve Bank of St. Louis and find some interesting “Nugget” of data and post it (or a link to it), please add your comments about what you found. It is best if you find a table, chart or other graphic that displays lots of data at once. Try to find data about the macro economy that does NOT include money or interest rates – save those for the next Nugget. Response 1)Brianna Rivers
RE: Fiscal Policy Predictions
Since the Keynesian economics theory states that governments can influence macroeconomic productivity levels through increased government spending and taxation because doing this will increase aggregate demand and ultimately boost employment rates. Keynesian economics emphasizes the use of fiscal policy, which is when a government adjusts its spending and taxation levels to influence the economy (lower or raise the aggregate demand).

Therefore, in relation to Keynesian Fiscal Policy, if a government increases its annual budget deficit, or increased spending while the economy has low employment, we can assume that there would be an increase in the aggregate demand for goods and services based on increased government spending, resulting in increased levels of production and employment. This relates to expansionary fiscal policy, which suggests that the use of government spending, transfer payments, or tax cuts can stimulate a higher level of economic activity (Goodwin et al., 2014). Although the authors mentioned that there are some complications with this theory and other factors often influence whether or not it works out this easily, I overall support this theory and feel that government spending can ultimately boost the GDP through the different effects.

Do you guys agree with this theory or another one? Response2)Erin Clunn
Fiscal Policy Prediction
Keynesian fiscal policy during a recession is very much geared toward the idea that the only way to fix the unemployment is to stimulate the economy with investment. This is seen when investors stop spending and start saving due to the low rate of employment. It makes sense that the government would decrease there spending in order to stimulate more of a demand for people to invest and jump start the economy. Response3) Erin Clunn
Favorite Alternative
My favorite alternative to Gross Domestic Product as a measure of our economic well-being is The Better Life Index (BLI). The main reason I like this alternative is because it actually measures more of the things that people contribute to their well-being. Since economics main focus is on people’s well-being it makes senses to have a measurement that reflects what that means for people. I always think that a person’s well-being consists of their income, inequality, jobs, housing, health, work and life balance, education, social connections and personal security. The BLI encompasses all of these and more including the environmental quality, civic engagement and governance as well as a person’s subjective well-being which I think is unique since all people can classify well-being differently.

Response4(Melissa Orellana
Data Work With Fred
I found a graph that shows the unemployment rate from 1948-present. The graph and rate of unemployment covers only the United States and only account for individuals that are 16 years of age and older. This graph and rates do not include those individuals who are in institutions such as mental institutions, penal facilities, and homes for the aged. This graph also covers only those individuals residing in 1 of the 50 states and the District of Columbia. What I found really interesting is that the graph displays the recessions that occurred during a year or years. The shaded grey vertical lines throughout the graph show you how many recessions there were and how long it lasted. Since 1948, there have been 11 recessions and some have lasted longer than others. The data conveys that 2020 is the year with the highest unemployment rate breaking the record with 14.7 percent, for all the past years. The graph shows a shaded vertical line in 2020 where a recession is just beginning. Considering the international pandemic, very high unemployment rates were expected and it was not a surprise that the unemployment rate is so high as it is now. Looking at the graph as a whole, unemployment rates have definitely fluctuated overtime. Some years you can see that it rises and other years it may subside.

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