Expansionary Fiscal Policy relies on changes in tax collections and government s

Question

Expansionary Fiscal Policy relies on changes in tax collections and government spending to achieve a non inflationary level of employment. Given this definition what actions and projected consequences did President Obama enact to realize this goal. Include in your discussion economic conditions that existed prior to the 2008 election, i.e. the mortgage/real estate crisis, employment and unemployment, provisions President Obama used to offset the economic conditions, projected benefits vs projected detriments to the economy. Be sure to include your conclusion on whether you believe that President Obama was correct or not.

Explanation / Answer

According to Keynes, fiscal policies are more effective to generate aggregate demand during recession/depression and monetary policies are not much effective. During the time of financial crisis (sub-prime lending) 2007-08, monetary loosening was not a good decision to generate liquidity in the economy. Therefore, the US government initiated the quantitative easing to bail out banks and generate liquidity in the system. I would say that the decision was all correct as the interest rates were already low and which were not helpful in generating demand for investment as lenders are not lending money in a fear to loose them (*low housing prices). Therefore, to boost aggregate demand and the economy it was essential to go for expansionary fiscal policies to increase the level of employment and spur the economy.

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