*Instructions: Please respond to each policy with a minimum of 300-word count each. Use APA Format to include in-text citations and a reference page. Use the source that I provided for you, here is the reference for it: Sexton, R. L. (2013). Exploring economics (6th ed.). Mason, OH: South-Western, Cengage Learning. Also, minimum of one outside scholarly source is required for each policy. NO PLAGIARISM PLEASE! Let me know if you have any questions or concerns. Thank you!
Below is an expansionary fiscal policy recommended to help the economy that is in recession. Provide further analysis and help identify other effects of the policy OR explain how it might have arrived at a different conclusion if the other model was chosen. Do this to both analyses.
Policy 1 (300-word count and references)
Using the Modern Keynesian Model of economics to stimulate an economy in recession, I would institute policies to stimulate spending and increase demand for goods and services. For example, a tax credit to purchase durable goods such as washers, dryers, refrigerators, and stoves, would create or preserve jobs while increasing demand down the supply chain. A tax credit to purchase a new car or truck, or build an addition onto your house would have the same effect.
Also, by boosting spending, and creating supply for products, employers will be able to maintain the level of wages paid to their workers, which preserves worker’s incomes that can be used for increased spending versus pay cuts. Maintaining worker’s wages also curtails inflation, which helps the economy recover more quickly.
Policy 2 (300 word-count and references)
Being a fiscal conservative who believes in small government, it pains me to think of any economic stimulus plan in a positive light. However, having served in the U.S. Navy while Ronald Reagan was president, I know first-hand the positive effects of having a government focused and committed to an active military. Therefore, to help stimulate an economy which is in a recession, I would recommend that the government increase its spending on the military. This action would increase employment in many sectors. However, the two areas which would feel immediate gains are numbers of troops and both domestic and foreign suppliers. These suppliers would stimulate the manufacturing sector which in turn must increase employment to ramp up and increase production to meet this new demand. This very condition came to fruition during the military expansion in the 1980’s. From 1980 to 1987, civilian employment increased 13.2 percent. However, the largest effects regarding employment came in the procurement sector. Between 1980 and 1985, military procurement orders increased 112%. This increase in orders was a boon for the suppliers of the military. Using the Modern Keynesian equation for aggregate demand, AD=C+I+G+X, this action would increase “G,” which is government spending. This action sounds all well and good, but as always, whenever government increases their debt, it is nearly certain that interest rates will rise. Rising interest rates will decrease the amount of cash consumers have to spend in the economy which limits economic growth. Although an increase in inflation is unlikely using this method to stimulate the economy, the result of less money being put into the economy due to higher interest rates may very well negate any benefit from this plan.