...Expansionary Economic Policy Clinton Dullin Eco203: Principles of Macroeconomics Evelyn Carlson 9/1/02014 The government in times of economic recession has responsibility to take action, engaging in expansionary economic policies is the action my paper will discuss. The types of economic expansion include Fiscal Policy, and Monetary Policy, the expansion of the two policies allows the government to adjust taxes, and government spending. Harry Truman once quoted “It’s a recession when your neighbor loses his job: it’s a depression when you lose yours.” (The economy perspective, the banker's banker. (1998, Jul 29). When recession hits the first party that is blamed is the government, so there ability to take action is a sign of them taking responsibility. Government action is necessary to right the recession ship, expanding Fiscal, and Monetary Policy may very well be the answer. The first topic of discussion is Expansionary Fiscal Policy and how the government uses the policy to affect the economy. Expansionary Fiscal Policy is a type of policy which includes increase in government purchases, a supple decline in taxes, while making an increase in transfer payments. These changes are designed to close the recessionary gap, while increasing economic stimulus packages and they aim to decrease unemployment. The government will introduce Expansionary Fiscal Policy during anticipation of contractions in the business-cycle. Increase in government spending will increase...
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...essay will explain how economists establish if the economy of a country is in recession or not. The essay will also analyse and review various policy tools that are often used by the government to guard against recession or to reduce the impacts of recession on the economy and the people. The essay will be divided into two parts. In the first part, the meaning of recession will be provided and why recession can be considered as an economic problem will be explained. Also, the first part will explain how the strength and depth of recession can be measured. The second part of this essay will explain various economic policy tools that government often use to make sure that economy of a country grows. Part 1 Recession is defined as a condition whereby a country experiences temporary economic decline, during which time the trade and industrial activities in the country are reduced; and the Gross Domestic Product (GDP) of the country fall in two successive quarters (Arnold, 2014). A recession can also be said to have occurred if there is a big reduction in the economic activity of a country, and this last longer than few months (Arnold, 2014). When there is a recession in a country, there will be a fall in the country’s industrial production, employment, real income and wholesale –retail trade (Arnold, 2014). This means that recession often has negative effects on the economy of a country and that recession can lead to unemployment for people and lack of profits for businesses (Arnold...
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...I. United States of America economic history In order to successfully move forward, we need to look to the past. The country’s economic history is like all history, meaning that it examines and observes the past activities of mankind (Fite 4). The most significant periods in the United States economic history are actually the three centuries before England settled in America. There were four changes happening in Western Europe that have greatly influenced America. Those changes were economic, political, religious, and intellectual (Fite 15). So why were these changes so important? They were the reasons that England decided to explore and expand in the western part of the world. The decision to expand trade and commerce was the most important advancement in the history of economics (Fite 15). From the time that the Virginia colonies were settled in 1609 up until 1890, farming was the most important aspect of the United States economy (Fite 30). Although manufactured products were worth more than products produced on a farm for the first time in 1889, farming was how the majority of Americans made a living (Fite 30). Despite the fact that agriculture dominated in these early years and the industrialization of the colonies was well under developed, “there was a high degree of specialization in the colonial economy” (Fite 63). For example, there were tobacco crops in the southern colonies which were crops that produced money, and in the northern colonies there was international...
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...Running head: CAUSE OF ECONOMIC CONDITIONS IN THE UNITED STATES AND THE UNETHICAL BUSINESS THAT LED TO IT Final Paper James Smith Hodges University GEB/PAD 6376 Dr. Forrer Week Due: 14 Due: 08/14/2011 Submitted: 08/10/2011 INTRODUCTION (Part 1) Why has the unemployment rate been above 12 percent for the last several years? Why have so many prior successful businesses closed in the last four years? Why have so many major corporations and publicly traded companies filed for bankruptcy? Why did a house that used to cost $200,000.00 just sell for $40,000.00? Why are foreclosures at the highest rate in US history? Maybe the question to ask is what has caused all of this? There are so many questions to be answered when it comes to the economic conditions in the United States. How did it get into the current condition? What were the signs of slipping into the crisis (economic indicators)? Whose actions were responsible? Was the responsible party also guilty of unethical behavior (big issue) or was it accidental. How long will it take for the economy to get back to being productive? In the past, America has been a very productive, successful country. There have been other recessions and a depression that have affected the U.S. but for some reason this current crisis was started by a completely different chain of events. What was the chain of events that triggered this...
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...Abstract Economic depression is a state of the economy resulting from an extended period of negative economic activity as measured by GDP .The great economic depression of the US from 1929-1939 was one of the worst economic depressions in the world economy. The GDP per capita of the United States fell by a third (Federico 2005). A lot of economic activities went down and so many people suffered. Even though the depression affect the rest of the world, it has been called the great depression of the US because it’s believed that the US suffered more than any other nation and the causes are also attributed to have been started in America. Many things have been attributed to have caused the great depression among them are bank failure, Stock Market Crash of 1929, Reduction in Purchasing Across the Board, American Economic Policy with Europe, Drought Conditions but many people believe that it’s the American economic policies that really caused the depression and entirely blame the government for that. Some of the effects are increase in unemployment, collapse of banks and increase in the cost of living. On the other hand the economic recession of 2008 was longest recession since the world war two hence the term great recession. The recession lasted for 18 months from December 2007 to June 2009. Various things have been attributed to have cause the recession among them are irrational excitement in the housing market and low interest rates while some of the effects are increase...
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...How does the stock market effect the economy? Movements in the stock market can have a profound economic impact on the economy and everyday people. A collapse in share prices has the potential to cause widespread economic disruption. Most famously, the stock market crash of 1929 was a key factor in causing the great depression of the 1930s. Yet, daily movements in the stock market can also have less impact on the economy than we might imagine. During the great recession of 2009-13, the stock market performed quite strongly. This rise in share prices was rather misleading to the state of the economy. Also, a fall in share prices doesn’t necessarily cause an economic downturn. There is a saying: Stock markets have predicted 10 out of the last 3 recessions. For example, the stock market crash of 1987, didn’t cause any lasting economic damage. (though it did influence monetary policy. UK cut interest rates in fear the stock market crash would cause a recession. Instead, low interest rates caused a boom. Plummeting share prices can make headline news. But, how much should we worry when share prices fall? How does it impact on the average consumer? and how does it affect the economy? Economic effects of the Stock Market 1. Wealth effect The first impact is that people with shares will see a fall in their wealth. If the fall is significant it will affect their financial outlook. If they are losing money on shares they will be more hesitant to spend money; this can contribute...
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...Neglect from banks and others also led to the Great Recession. The subprime mortgage crisis could have been avoided if accountants were more aware because large banks were violating regulations and concealing the investments that were unstable. Moreover, accountants did not recognize these violations, allowing banks to continue lending subprime mortgages. (Rosenberg 2). Greater awareness from the part of accountants would have prevented many bank failures. On the other hand, the negligence of the Federal Reserve in maintaining low-interest rates could have had been prevented by corporations themselves. Due to the bankruptcy of Enron in December 2001 due to bad management and greed, the Federal Reserve needed to add money to the economy by lowering interest...
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...Recession In economics, a recession is a business cycle contraction. It is a general slowdown in economic activity.[1][2] Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation. Definition In a 1975 New York Times article, economic statistician Julius Shiskin suggested several rules of thumb for defining a recession, one of which was two down consecutive quarters of GDP.[3] In time, the other rules of thumb were forgotten. Some economists prefer a definition of a 1.5% rise in unemployment within 12 months.[4] In the United States, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions. The NBER defines an economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment...
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...Money, Banking and Monetary Policy Lashawn Lyles Principles of Economics Devry University Professor William Cheng April 14, 2013 The United States is the leading economy of the world however we have been in a recession since 2008. Last year, unemployment was at a record high. Today the labor market is gradually improving. Payroll employment has increased by 175,000 jobs per month on average, and the unemployment rate declined 0.3 percentage point to 7.9 percent over the same period. Cumulatively, private-sector payrolls have now grown by about 6.1 million jobs since their low point in early 2010, and the unemployment rate has fallen a bit more than 2 percentage points since its cyclical peak in late 2009. In spite of these gains, however, the job market remains generally weak, with the unemployment rate well above its longer-run normal level. About 4.7 million of the unemployed have been without a job for six months or more, and millions more would like full-time employment but are only able to find part-time jobs. High unemployment has substantial costs, including not only the hardship faced by the unemployed and their families, but also the harm done to the vitality and productive potential of our economy as a whole. The loss of output and earnings associated with high unemployment also reduces government revenues and increases spending, thereby leading to larger deficits and higher levels of debt. The problem started...
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...2008 FINANCIAL CRISIS Name Course Date 1. Background The financial crisis commenced in August 2007 after the preceding inflation. The crisis became more defined throughout 2007 and gained momentum in 2008. This took place even after the financial regulators and the central banks’ tireless attempts to tame the situation. It is alleged that the main factors that influenced its manifestation include corruption, fraud, speculation, greed, bankers and bankers’ bonuses. However, the academic discourse, politics or media has been unable to solve the mystery surrounding the main causes of the crisis[1]. The mystery is academically relevant to the world of research just like the Great Depression, whose causes are still being discussed. Other sources believe that the crisis might have been as a cause of human failures especially following the refusal to bail out the Investment Bank Lehman Brothers. The housing bubble was the immediate trigger of the 2008 financial crisis. The following were the triggers under the housing bubble. I. Subprime lending A subprime mortgage is the mortgage that is readily acceptable without imposing strict measures of standard on it. Before the 2008 financial crisis, there existed a fierce competition between mortgage lenders. The competition between the mortgage lenders ensued from the struggle for market share and revenue. It also took place in tandem with limited supply of creditworthy borrowers which put unconditional stress...
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...Expansionary economic policy During the Great Depression, the United States suffered severe and lasting unemployment, along with falling prices and a sharp decline in real output. Because the unemployment level lasted so long, the Keynesians disagreed with the Classical theorist. The Classical economists argued that recessions would be temporary and self-correcting; therefore, the government should have a limited role in the money supply. Whereas, the Keynesians argued that during a time of long-term financial crises the government should intervene by injecting money into the market. Still many economists continue to debate about which economic policy to implement during a crisis in the financial market. Therefore, in an effort to move the economy out of a recession, the federal government engages in expansionary economic policies to alleviate the strain. A recession is a general slowdown in economic activity, during which the federal government will implement fiscal policies and the Federal Reserve Bank will implement monetary policies to stabilize the economy. Indeed, policy measures implemented to increase Gross Domestic Product (hereinafter referred to as GDP), and economic growth are expansionary. When the federal government implements fiscal policy it is to stimulate growth and employment by changing tax rates, levels of transfer payments, or government purchases of goods and services in order to change the equilibrium level of national income (Amacher & Pate, 2012)...
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...Question 1 Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy. In this question I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework. I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. The IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by Hansen in order ‘to provide a framework for analysing the factors determining the level of aggregate demand’. The IS-LM model is a short run model of the determination of output. It shows the unique combination of income and interest rates that lead to an equilibrium in both the goods and money market at the same time (Begg, 2008). The IS-LM model is presented...
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...embargo, the role of rapid, unanticipated increases in oil prices has been a topic of intense interest, among both economists and the lay public. Considering the magnitude of widespread national recessions during the 1970s, the controversy surrounding research on the macroeconomics of oil price shocks may seem surprising: why would anyone doubt the capacity of oil price shocks to cause the major movements in GDP (Gross Domestic Product) which have been observed in so many countries? Possibly most important in fueling the controversy is the small share of GDP that oil and its close substitutes have comprised in most economies: 1.5% to 3% prior to the 1973 episode. Experienced macroeconomists doubted that even a sizeable shock to such a small part of the economy could have the observed effects. Second, the 1973 episode itself was not a clean experiment because a number of other major factors were emerging at the same time. The world economy was just getting off the post-Bretton Woods fixed exchange rate regime. A number of countries, including the United States, was teetering on the brink of recession at the time of the 1973 shock; in the United States in particular, monetary policy tightened right around the time of the 1973 shock. Separating these effects and deciding the role of oil price shocks in post 1973 movements of GDP, unemployment rates, and other recessionary indicators has been technically difficult; the potential answers to oil’s role have...
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...model is useful for evaluating factors and conditions which effect the level of Real Gross Domestic Product (GDP adjusted for inflation) and the level of inflation. The model is an aggregation of the elementary microeconomic supply-and-demand model discussed in the previous chapter. Like the microeconomic model, the AS/AD model is a comparative statics model. The model's insights, therefore, are obtained by identifying and initial equilibrium condition, then "shocking" the model by charging one or more of the parameters, then evaluating the resulting new equilibrium. Introduction to the Aggregate Supply/Aggregate Demand Model Now that the structure and use of a basic supply-and-demand model has been reviewed, it is time to introduce the Aggregate Supply - Aggregate Demand (AS/AD) model. This model is a mere aggregation of the microeconomic model. Instead of the quantity of output of a single industry, this model represents the quantity of output of an entire economy (or, in other words, national production). Refer to Figure 2.1 for an example of the AS/AD model. As can be seen, two variables are represented by the model. The quantity variable on the horizontal axis is now represented by real gross domestic product (Y). This is the measure of the true value of annual national production, and is adjusted for inflation. The level of price inflation is represented on the upright axis. A suitable economic statistic for this value would be the rate of inflation...
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...Escaping the Recession 2007 Is Creating Recession? Han Tran Principles of Macroeconomics Mihaylo College of Business and Economics California State University at Fullerton December 2, 2010 Abstract The Economic Recession 2007 is the second worst recession in American history. It starts out within the housing market. Then, it expands and harms the other business sectors clearly. To illustrate, the U.S GDP failed by around 7%. Americans struggles who laid-off so unemployment rate shoot up to 9.7%. Many retirees lose their money due to the failure of many investment vehicles. The stock market performance declines because companies go bankrupt. Faced the threat of another Great Depression, the government and Federal Reserve Bank immediately interfere to boost up the economy using many fiscal and monetary policies. These efforts definitely help to improve or at least lighten the crisis’s impact on households and businesses. However, economists are concerned by the potential risks of future inflation and debts. 1. Introduction It started out as a failure of the housing market only. However, unexpectedly and quickly expanded, it flooded the whole economy with bankruptcy, unemployment and failure of stock market and other investment vehicles. It is the Recession 2007 whose damages are just less than the Great Depression. The following paper primarily demonstrates the causation of the Recession 2007, the responded policies of the government or the Federal...
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