Question

Discuss the fiscal policies of the Obama Administration. Provide a graph (properly labeled) that supports that discussion showing how the recessionary gap was closed.

Answer 1

Obama took over the position of presidentship, the US economy was in the recession.

The aggregate demand was deficient during this period. Therefore the unemployment rate was very high. It was incumbent on government to increase the the aggregate expenditure level to drive the aggregate demand in the economy. Obama pursued expansionary fiscal policy thereby led to rise in aggregate demand and output level.

The process of closing the recessionary gap was rather slow but still economy was recovering during the the tenure of President Obama.

Following is the diagram :

iin the above diagram, the demand had AD that correspond to underemployment. The level of of GDP is Y. Expansionary fiscal policy shifted aggregate demand AD1. Now here economy is operating at the full employment level. Therefore, economy recovered and recessionary gap was closed.