Analysis of Discretionary Fiscal Policy Essay - 699 Words

During discretionary fiscal policy the government spends and taxes to change the economy during a particular problem. Both Congress and the president have to take action when they agree that the economy is in need. When they do this they are trying to simulate the economy during a time of recession. Economists thought discretionary fiscal policy would eliminate the instability of the recession, however most had given up on the idea by 1980. The most noticeable discretionary fiscal policy is the discretionary budget. These are the expenditures calculated in the United States budget that are within the appropriations bills. These are negotiated between Congress and the president each year. This includes almost all the spending in the†¦show more content†¦There are three types of lags recognition lag, administrative lag, and operational lag. From those lags you must determine if they were an attribute to the failure. Each lag takes time to notice. Recognition lag measures the state of the economy. This is a resultant from GDP because its not measured neither quick enough nor easily found. During administrative lag the president and Congress agree on a course of action. Two legislative bodies must agree and then agree with the president. Congress doesn’t solve problems without any disagreement, and eventually over a period of time they will agree. The last type of lag is operational lag, this takes time to n otice the full impact of a government program or tax change to have the effect on the economy. This offers the final block and even if both the president, and Congress agree on time it still takes time for discretionary fiscal policy to have an effect. The next part of the three fold is that failures can be a result from political motivations that overwhelm some economic reasons. Finally, the third part of the three-fold deals with the immediate counter-effects of the aggregate demand and aggregate supply, which this could either eliminate the positive intent of the policies either partially or completely. Policy makers noticed in the 1970s that discretionary fiscal policy couldn’t stabilize the economy. â€Å"The lags were just too important to ignore, and the recession to be recognized, laws toShow MoreRelatedFiscal Policy And Fiscal Policies838 Words   |  4 Pagesactive fiscal policy† (CNBC) in order to have its economy back on the reasonable range. Fiscal policy affects aggregate demand depending on the government’s spending and taxation. Thus, if the government decides to make changes in its taxation such as discounting corporate taxes, the aggregate demand curve will shift. In addition to that, money spent on public services and welfares will increase government spending which will affect aggregate demand as well. 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