英语论文网

sions have a widespread effect on the everyday decisions and behaviour of individual households and businesses - hence in this assignment we consider some of the microeconomic effects of fiscal policy and considering the links between fiscal policy and aggregate demand and key macroeconomic objectives.

Keynes recommends using an expansionary fiscal policy in the case of a recession. It means: reduce taxes and increase government spending. In the case of inflation, the opposite is recommended.

The United States of America recession that began in December 2007 is likely to be the longest recession since the Great Depression (Alan J.Auerbach 2009). It is clearly the most serious and harsh in decades. In response, the US government has actively applied the tools of monetary and fiscal policy. As shown in below figure(2), the impact of this efforts are clear to save the economy from recession.

Figure 2: Impact of Expansionary Fiscal Policy
Assuming price stability, an expansionary fiscal policy (an increase in government expenditure, an increase in transfers or a decrease in taxes) will push aggregate planned expenditure up by the change times the appropriate multiplier. This will lead to an increase in aggregate demand at the same price level and reflected in a shift to the right of the aggregate demand curve.

Fiscal policy has been very active in US. In February 2008,Congress passed the'Economic Stimulus Act of 2008' containing one-time tax rebates for households and temporary accelerated depreciation for businesses, producing a one-year increase in the deficit of just over 1 percent (CBO 2008).

Almost exactly one year later, under a new president and with the severity of the recession much more apparent, Congress attempted to provide additional fiscal stimulus through the 'American Recovery and Reinvestment Act of 2009', which was estimated to increase the deficit by a cumulative amount of nearly 5 percent through its first two full budget years (CBO 2009a). The 2009 legislation was not only bigger than the previous years, but also provided for increases in government spending, including expanded unemployment compensation and aid to state and local governments.

After the 2008 fiscal stimulus was introduced, there were many calls for additional fiscal actions. These calls increased as the financial market collapse accelerated in the fall of 2008, and by the time President Obama took office it was a virtual certainty that some action would occur quickly. But the size and composition of the fiscal package remained undetermined. Some argued for an even larger package than was adopted. Others expressed concern that the timing might have too much of the stimulus hit the economy after the greatest time of need and contribute to inflationary pressure, while others worried about the potential contribution to the long-run fiscal problem. Finally, there was scepticism about the ability of the likely fiscal package to stimulate the economy very much, particularly given the state of financial markets at the time and the general uncertainty about the size of fiscal multipliers.

Macroeconomic impact of fiscal policy on US current recession:
As we already mentioned there are current argument of usefulness and effectiveness of fiscal policy on current recession in US. The identification of government spending shocks has been the subject of a