The speed of job losses has been decelerating indicating that the worst nightmare is at the verge of the beginning of it’s end. Therefore, the government needs to have a sound control on spending giving the pressure mounting on unemployment benefits.
Furthermore, the fiscal stance of government determines whether an expansionary of a contractionary policy is being implemented. Also the aggregate demand is always expected to be lower as compared to former years if the deficit has been comparatively low too. Thus, it would be implied that there would have been a decrease in injections or an increase in withdrawal such as taxes (Sloman 545).
According to John Maynard Keynes, the actual reason for recession is insufficient demand (Lee, Johnson and Joyce 695) and a decline in purchasing power as a result; therefore, it should be enhanced by government spending. According to many economists till the 1970’s the point of view emerged that the actual problem lied in the supply side as opposed to the demand side. Thus, the argument is characteristic of the fact that high taxes lead to a declining economic activity. In simple words, when tax burden is high, it leaves behind discouragement in terms of being able to carry out private investment and production.
Hence, the stimulus package was introduced by the Obama administration. However, according to a survey, it has been revealed that there seems to be no need of another stimulus package. In order to avoid the financial system from falling apart $787 billion worth of tax cuts and spending was introduced as part of the stimulus package. This was a major step towards tampering with discretionary fiscal policy in order to see national income rise or rather be rescued.
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