Essay Sample on Fiscal Policy: Governments' Tool to Influence Economic Activity

Introduction

Governments use fiscal policies as tools and means of adjusting their respective budget balances through spending and revenues to influence the broader economic conditions. Through fiscal policies, governments can influence their respective economic activities, which in this case are measured by gross domestic product (GDP), by increasing or decreasing their expenditure and tax revenue levels. The expansionary fiscal policy is one of the policies that governments use, considering its influence to spur economic activities. Concisely, the expansionary fiscal policy regulates a country's economic activities by increasing the level of government expenditure, reducing the country's tax revenue, or a combination of the two aspects. Based on the levels of government expenditure and tax revenue collection, the expansionary fiscal policy creates more opportunities in the form of employment and in the worst case the expansionary fiscal policy might also lead to inflation. This essay discusses the effects of expansionary fiscal policy on unemployment and inflation.

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In the article, Fed Officials See Faster Economic Growth under Trump, but No Boom, Appelbaum notes that the Trump's presidency promises a positive economic growth considering his priorities in regaining and transforming the United States economic phase. Trump's administration purposes to restructure the United States economy by increasing government expenditure, reducing the interest rates, and cutting the tax levels. As such, Appelbaum claims that the government will consequently create more jobs for the unemployed while encouraging more people to borrow from the financial institutions, thus expanding the economic scope through the creation and funding of more business entities. However, the Federal Reserve officials expressed their concern about the intended restructures of the economic policies claiming that such policy changes, as proposed by President Trump, would not necessarily lead to a positive economic growth due to inflation. According to the Fed's officials, real economic growth would only be possible if and only if the financial institutions raised the interest rates to regulate borrowing while increasing the risks for investors.

Overall, the expansionary fiscal policy plays an important role in accelerating a country's economic activities through job creation. By increasing the level of government expenditure and cutting the level of tax revenue, more opportunities are created, thus absorbing more people into productive economic activities. However, the expansionary fiscal policy can also expose a country to inflation due to the increased government expenditure and reduced tax revenue. The former and the latter encourage more people to borrow from the financial institutions, thus increasing the aggregate demand. Therefore, the government should carefully implement and regulate the expansionary fiscal policy by ensuring that it solves the unemployment mystery by supplying goods and services that do not surpass the aggregate demand, which leads to inflation.

Work Cited

Appelbaum, Binyamin. "Fed Officials See Faster Economic Growth Under Trump, But No Boom". Nytimes.Com, 2017, https://www.nytimes.com/2017/01/04/business/economy/federal-reserve-minutes-interest-rates.html. Accessed 24 Feb 2020.