For various reasons, fiscal policy changes automatically when output and employm

Question

For various reasons, fiscal policy changes automatically when output and employment fluctuate: Do some online research about our last recession in 2007-2009. How did the federal government (President and Congress) respond to the recession? What types of fiscal policy did they use (explain in detail)?

Address the following topics in your analysis:

A. Explain why tax revenue changes when the economy goes into a recession.

B. Explain why government spending changes when the economy goes into a recession.

C. If the government were to operate under a strict balanced-budget rule, what would it have to do in a recession? Would that make the recession more or less severe?

D. How do political party politics impact stabilizing fiscal policy?

Answer in 250+ words.

Explanation / Answer

A. Tax revenue will most certainly decline during a recession. Although there are many contributing factors for government revenue, a substatial amount of it comes in the form of tax receipts. And when real GDP growth is negative for continual quarters within a year it. Lower disposable income will lead to lower consumer spending, which will then lead to a fall in real GDP. A decrease in income will cause tax revenue to ecline.

B. When an economy goes into recession , primarily associated with lower household disposable income, which will lead to lower consumer spendingand ultimately fall in real GDP. To simulate the economy, sometimes expansionary fiscal policy is implemented to push aggregate demand cure to the right, this is done by increasing government spending, causing income to be on the multiplier effect.

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