Economic Policy and Practice

economic Policies And Practices ECO2072 / Professor Gordon 4/5/2013 Assignment Due Date 4/3/2013 Economic Policies And Practices Understanding the foundation for which our economic system and society as a whole is built upon, the need for a program lineled and managed monetary scheme to puzzle out pictureively in order to facilitate trade and arouse the execute at bottom our economic system is a must.To facilitate this need the national brass implements tools for analyzing the thriftiness in order to regulate and control, and decisions argon make based on the inputs and observations made to stabilize and enable the capital to prep be and retract as required within our economic system. Again, based on the aforementioned, the phrase money makes the world go round therefore advise be attributed to the controlled systems, policies and/or a networks of our federal brass for which are governed to enhance and manage both the levels of and effects of our monetary monetar y system.As we proceed, we give try on to explain various government policy mixed bags or unplanned solvents which laughingstock and may occur, and the resulting economic events or activity that will be impacted within our economy and the effects it has upon and within our economy. Implemented budget send off Resulting In Increases In Debt And No Plan For Problems As we look at our federal Governments role in execution and control of our nations budget and the current budget deficit we abide only beg that those in charge of the decisions utilize the tools available to them to manage and soften the cocker to the economy as the deficit grows.Where in the fortune our government employs a budget plan over several fiscal courses and results wherein our economy sustains signifi shadowt adds in the nations debt and displays no signs of relief nor presents no plans to deal with the problems, several outcomes would be likely in the economy. Mankiw, 2009, Ch. 32, P. 706 describe s one effect being where government expireing exceeds government revenue thereof representing nix public saving, therefore reducing national savings, thus reducing the cater of loanable funds, Increasing beguile deems, and crowds out consecratement.Amadeo, 2013 shares additional effects of this scenario wherein the deficit adds to a countrys debt each year and as the debt increases and the sake on the debt must be paid, it increases spending while adding no benefit to the economy. If the amour paymentments continue to rise, it can begin to create a drag on the economys growth. Mankiw, 2009, Ch. 32, P. 706 states additional effects in that when budget deficits try out arouse rates, both national as well as hostile behaviors cause U. S. net capital outflow to fall.Therefore, in an open economy, our governments budget deficit raises the economys real interest rates, thus crowding out domestic authorizement, and create the currency to appreciate, thus pushing the trade b alance toward deficit. Enactment Of New Tariffs And Quotas On in all Imports The economy uses a object slighton of add up demand and aggregate render as a means to analyze the economic fluctuations of cut and demand. This model depicts both the overall price levels in the economy and the overall bill of goods and services produced in the economy.If in fact the Federal Government were to reenact new tariffs and quotas on all imports, the economy would indeed experience effects from this activity. Mankiw, 2009, Ch. 33, P. 725-726 describes the model of aggregate demand and supply being what most economist use to explain short-run fluctuations in economic activity approximately the long-run trend. The aggregate demand curve displays the bar of goods and services for which households, firms, the government, and customers afield want to buy at each price level.The aggregate supply curve shows the quantity of goods and services that firms choose to produce and sell at each pri ce level. The impact the economy would incur in the case of tariffs enacted being evaluatees imposed on imported goods is the increase of the price of the goods in the domestic market, therefore domestic producers benefit repayable to they receive high(prenominal) prices, the government benefits through the collection of tax revenues thus resulting in less goods produced and the consumer pays higher prices (Investopedia, 2013).In the case of quotas and their effect on the economy, we find that quotas are numeric limits which are imposed on imported goods and in such a case of enactment consumers are truly harmed by the quotas while domestic and foreign producers will benefit once again by receiving higher prices for goods and services (Investopedia, 2013). Loss Of Confidence In Leadership In superpower To Manage And Create Jobs The Federal government is the entity that steps in when our economy incurs unhealthy conditions within its business cycle.It is presumed that our governm ent has tools to detect and analyze our economy to understand those events that have the potential to alter the economys equilibrium. With view to the aforementioned, problems arise when the general public regresss self-reliance in the leadership and their great power to manage the economy to include job population. Mankiw, 2009, Ch. 33, P. 741 shares, that in the scenario of lack of confidence we find that consumers again alter their plans for the future cutting patronize on purchases and spending.The effect of this cutback impacts the aggregate demand curve as well as the aggregate supply curve thus impacting either the short-run equilibrium and/or the long-run equilibrium. The consequences result in falling incomes and rising unemployment due to reduction of output mirroring the shift in aggregate demand responding to decline sales and production. Amadeo, 2013 states consumers who drive 70% of the economy wont spend if they dont believe the future will be unattackable a nd secure.Therefore, the underlying role of the government is to create confidence, powering the economic growth postulate to create jobs. Decrease Taxes In Effort To Stimulate The Economy some other tool within our government and its fiscal policy to regulate and control economic growth is the taxation level. Some claim that, tax rate cuts can lead to increased economic growth, and wealth, while others claim that by reducing taxes correlates to the benefiting of the wealthy due to they pay the most taxes already.Our government possesses the powers to tax which in turn gives it greater control over its revenues. Mankiw, 2009, Ch. 34, P. 773 shares, that when our government reduces individualised income taxes, it increases the take-home pay of consumers. These households will save some of this additional income, and will also spend some of it on goods and services. Because reducing taxes increases consumer spending thus stimulating the economy, the tax cut shifts the aggregate-dem and curve to the right. Conversely, a tax increase represses consumer spending and shifts the aggregate-demand curve to the left.The greater question lies in what is the impact in our economy of a tax reduction for those making over $250,000? Amadeo, 2013 shares that, the government considers those families that earn more than $250,000 yearly are wealthy and therefore should pay more taxes due to their ability to afford it. Amadeo, 2013 continues by stating that, economist dictate they do not spend these tax cuts, but save and consecrate them and therefore tax cuts for the wealth do not stimulate the economy. investment funds Levels Decrease Due To Lack Of Confidence In EconomyThe economy revolves round the ability of consumers to invest their moneys in goods and services or deposit ones excess money into interest bearing savings accounts wherein which the financial institutions would use the funds to make loans to consumers for the purpose of investing in own(prenominal) intere sts. The ability to invest is crucial to the long-run of our economys achiever and the functions of aggregate demand and supply and when these levels of investment decrease due to a lack of confidence in the economy several consequences begin to exsert in the economy. Mankiw, 2009, Ch. 33, P. 41 shares that, during such an event many people lose confidence in the future and alter their plans, therefore households cut back on their spending and refrain from major purchases, and businesses retract from the purchases of new equipment. AmosWeb, 2013 states the confidence that consumers have in the economy affects their willingness to undertake consumption expenditures. Any change in the confidence of consumers wherein by changing consumption expenditures, will set out changes in the economys aggregate demand therefore causing a leftward shift of the demand curve. Interest Rates Kept by artificial means Low By Feds For Several YearsThe economy revolves around the interest rates on th e many investments of the consumers and plays a crucial dispel in the spending on goods and services. The impact on the economy can be said to be two fold in the event that interest rates are kept artificially low by the Federal Reserve over a lengthy period of time. Mankiw, 2009, Ch. 33, P. 728 states that, interest rates affect spending on goods and services, therefore a depress interest rate makes borrowing less expensive and it encourages businesses to borrow to invest in operations and equipment as well as it encourages consumers to borrow to invest in self and home.This said, lower interest rates increase the quantity of goods and services in the economy. Conversely, Shilling, 2012 shares that artificially lower interest rates can have negative impacts on consumers in where those who are saving money are now receiving minimal to little return on their lingo and money market accounts. Additionally, the day of the free checking accounts are fading remote as well as banks and thrifts who deal with the lower interest recompense are increasing the amounts of required balances on checking accounts that pay zero interest up to a set minimum.It is also noted that many savers are leaving the money markets funds for the protection of accounts covered by the Federal deposit insurance corp. which is displayed in the M2 velocity of money. Conclusion Based on the aforementioned and the understanding of the foundation for which our economy and society as a whole is built upon, the need for a controlled and managed economic system to function effectively in order to facilitate trade and stabilize the flow within our economy is a must.To facilitate this need, the federal government implements policies and practices within the economy in order to regulate and control, and base decisions on those inputs and observations in order to stabilize and enable the money to grow and retract as required within our economic system to maintain a fit equilibrium. Again, based on the aforementioned, the phrase money makes the world go around therefore can be attributed to the controlled systems, policies and/or networks of our federal government for which are governed to enhance and manage both the levels of and effects of our financial monetary system.Reference Amadeo, K. (2013). Budget deficit. U. S. Economy, Retrieved from http//useconomy. about. com/od/glossary/g/Budget_Deficit. htm Amadeo, K. (2013). Job creation statistics, ideas, and job creation by president. U. S. Economy, Retrieved from http//useconomy. about. com/od/Employment/tp/Job-Creation. htm Amadeo, K. (2013). Should families making over $250,000 a year get tax cuts? President George Bush Tax cuts, Retrieved from http//useconomy. about. com/u/ua/usfederaltaxesandtax/Tax-Cuts-Should-The-Wealthy-Get-Tax-Cuts. htm AmosWeb. (2013). Consumer confidence, aggregate demand