Assignment:
Discussion 1:
There are essentially polar opposite view points to the classical and Keynesian approach to macroeconomics. The largest, and most obvious, difference between these two conflicting points of view would be the ‘hands-on' vs. ‘hands-off' approach. Classical economists follow the ‘hands-off', or laissez fair approach (Amacher, 2019). Keynesians would argue this is not a good idea because the economy clearly shows that, when left untouched, it can spiral in to terrible circumstances which call for a ‘hands-on' approach. Another primary dispute between the two view points is how the economy adjusts during recession and finds its way back to full employment (CrushCourse, 2015). The classical point of view would lead us to believe the economy will correct itself over time.
The Keynesian model asserts the economy can be stuck below its potential for too long of time (g whizziest, 2015). The Keynesians say wages and prices, although flexible, can get stuck and keep the economy well below its full employment potential (g whizziest, 2015). Sure, it might correct itself in the long run, but how long? As John Maynard Keynes' said, "In the long run we are all dead."
For this discussion, I have been assigned to the classical point of view. I would support this economics philosophy for the following reason: classical economists believe the economy will experience ups and downs but will always return to full employment on its own. Even during a recession, the ‘price adjustment mechanism' will right the economy (CrushCourse, 2015). This would mean that during a recession unemployment, prices, wages, and interest would fall (CrushCourse, 2015). However, this would also mean consumption, production, and investment should increase over time, which would eventually return the economy to full employment (CrushCourse, 2015).
In regard to the current U.S. economy, as a classical economist, I would take several measures to right the course. For starters, we would need to cut out all government involvement, or manipulation. All the government does is mess things up. Fire the Federal Reserve members. The economy does not need any sort of regulation. We will allow each market to regulate itself without rules imposed by the government. In the long run, any problem the U.S. economy might face will be corrected naturally.
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.).
CrushCourse. (2015, December 8). Classical and Keynesian economics. Links to an external site. [Video file].
g whizziest. (2015, September 29). The Keynesian model and the classical model. Links to an external site. [Video file].
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.).
CrushCourse. (2015, December 8). Classical and Keynesian economics.
g whizziest. (2015, September 29). The Keynesian model and the classical model.
Discussion 2:
The model school that was picked for me to write about is classical economics.
1. Compare and contrast classical economics and Keynesian economics. What are the major differences between them?
2. Which model would you prefer? You may already prefer one because you are defending your school. Thoroughly explain your reasoning.
3. As a classical economist or a Keynesian economist, what would you do for the current U.S. economy?
References
Amacher, R., & Pate, J. (2019). Principles of Macroeconomics, 2nd edition. [Electronic Version].
Dombusch, R., Fischer, S. & Startz, R. (2001). Macroeconomics. New York: McGraw-Hill
Discussion 3:
The government bodies that determine fiscal policy are the Legislative (Congress) and Executive (President) branches of government and the Federal Reserve. Congress creates bills (plans, proposals, etc.) and they are then voted on. Some of these bills are proposals in changes to government spending, or taxes. Government spending and taxes define fiscal policy (Amacher, 2019).
The President can also propose changes to government spending, or taxes, in the form a bill to Congress. I include the President as part of this response because the Executive branch clearly has the most weight, and will get immediate attention from Congress. The Legislative branch may, or may not, sign these bills in to law.
The last government body to determine fiscal policy is the Federal Reserve. This entity is meant to have autonomy from the branches of government, although the Executive branch has the means to appoint members with approval from the Senate. The Federal Reserve's primary function is to conduct monetary policy (Federal Reserve, n/d).
When defining fiscal policy as taxes and government expenditures, it is easy to see the effects such policies have on the economy. Any changes to taxes, "can be a very effective tool for influencing the level of income and output," (Amacher, 2019). Several types of taxes from personal, business, and property will affect the economy in different ways. When it comes to business, or corporate, taxes, the higher the they are, the less those businesses might produce or employ. This is not to say that corporate taxes prevent production or employment, but they do have an effect.
Government spending is also a massive economic influence. These expenditures add up to over a third of U.S. national income (Amacher, 2019). There is a clear relation to government spending and employment. Any new project or program will require people; therefore, new jobs.
The Federal Reserve, through its monetary policy, has the authority to raise or lower interest rates (Federal Reserve, n/d). These interest rates directly impact the credit market which will determine the level of desire business will have towards borrowing funds. The more expensive it is for a business to borrow funds the less they will produce or employ.
Unfortunately, the U.S. national debt as had very little affect towards fiscal policy. During the 80s through early 90s, the debt rose from less than $1 trillion to over $4 trillion (Amacher, 2019) and has continued to skyrocket. This is because the national debt is a measure of all past budget deficits minus all past surpluses (Amacher, 2019). The national budget is determined by Congress. When the government spends more than the its revenues in a given year, we are left with a deficit (Amacher, 2019). If our revenues exceed expenditures, we are left with a surplus. The U.S. government has been successful towards a balanced budget for a couple years in 98', 99', 00', and 01' resulting in surplus (Amacher, 2019). Since then, we have had nothing but deficit for each following year. There simply has not been any serious effort made by fiscal policy to balance the budget and control a deficit.
The current U.S. national debt is not a serious problem like heavy personal debt for the outstanding reason of accountability. When it comes to personal debt, when left unpaid, there are consequences. If you fail to make a mortgage payment or auto loan payment, there's a good chance you can lose your house or car. With the national debt, there are payments the U.S. government is obligated to make in the form of interest. However, no one would be personally held responsible in the event the U.S. chose not to make such payments. There would be consequences to the credibility of the U.S., but no government official would be left out on the street.
Amacher, R., & Pate, J. (2019). Principles of macroeconomics (2nd ed.).
Federal Reserve, (Date n/d). Board of Governors of the Federal Reserve System. About the Fed. Purposes and Functions.
Discussion 4:
1. Describe the roles of government bodies that determine fiscal policy.
2. Explain fiscal policies effects on the economy's production and employment.
3. How does the enormous U.S. national debt affect the federal government's fiscal policy?
4. Is the current U.S. national debt a serious problem like a heavy personal debt? Why or why not? Discuss thoroughly.
Reference
Amacher, R., & Pate, J. (2019). Principles of Macroeconomics, 2nd edition. [Electronic Version].
Demirel, D. (2014, July 23). How would various fiscal policies affect federal debt and the economy?
Dombusch, R., Fischer, S. & Startz, R. (2001). Macroeconomics. New York: McGraw-Hill