Question

What is the current plan for fiscal policy? Incorporate a definition of fiscal policy for both recession and inflation, and explain how having Congress and the Presidency from different parties will influence taxing, spending, and the budget deficit.

Answer 1

Current plan for the fiscal policy is to spend over $3 trillion in the economy to revive it that is suffering slowdown and expecting recession in the wake of COVID-19. It involves offering direct cash to people on the basis of their income. For example, people are given $1200 per month for 3 months whose income is $75000 or less. If the impact of corona virus increases, then more of such a stimulus check will come for every American. Here, it is to be known that fiscal policy for recession is expansionary in nature where government increases spending and or decreases the tax rate to stimulate the economy. These measures work to stimulate the AD, create new jobs and help economy recover. In the past, during 2008 crisis and following recession, US government had spent over $785 Billion to stimulate the economy.

In contrast to it, when economy is in expansion or inflation, then fiscal policy is of contractionary in nature where government reduces spending and or increases the tax rate. It will decrease the disposable income and inflation will be controlled.

The congress and presidency of Republican party, will focus on lesser taxation and not charging higher tax to the wealthy people or businesses. Though the spending, will continue and it will increase the deficit, and it will go for the deficit financing to cover its expenses. For example, spending of $3 trillion in current scenario is done by Republican party government.  In contrast to it, congress dominated by Democratic party and presidency by Democratic party, will charge less tax or no tax upon poor, but propose higher taxes to the businesses and wealthy people. It will create more tax revenue, but spending will continue. It will also make this government to go for the deficit financing, raising money using different means.