Fiscal policy is the government spending policies that influence the economic conditions of a nation. Through fiscal policy, a government seeks to control unemployment, inflation, interest rates and business cycles.
In my view, the U.S government should reduce the federal spending for several reasons. One of the reasons is that the needs to reduce the budget deficit. By reducing the federal spending, the national budget will be reduced allowing the government to use what it has collected from taxes s opposed to borrowing (Nakata, 2015). The federal government has been running a deficit budget for some time and it is time to reduce the deficit.
Another reason is that reduced spending can be translated to lower tax rates. Lowering the taxes rate will increase the income of the American people. With more income, the people will either consume more or safe more or invest more. Both consumption and investment are components of national income and so is federal spending. Reduced federal spending if translated to reduced tax rates will have no effect on the national income. This is because while the reduced spending lowers the national income, the increased consumption and investment increases the national income thus balancing each other (Perry, Serven & Suescun, 2008).
Another reason is that most of the counties in the U.S are in the prerecession stage of size of the economy, unemployment rate and total employment. This indicates that the economy still has not fully recovered. Decreasing federal spending through lowering taxes will give the people more money to spend thus boosting the economy (Perry, Serven & Suescun, 2008). This will increase the Gross Domestic Product in that it will increase the incomes of the people through reduced tax rates.
Nakata, T. (2015). Optimal Government Spending at the Zero Lower Bound: A Non-Ricardian Analysis.
Perry, G., Serven, L., & Suescun, R. (2008). Fiscal policy, stabilization, and growth: Prudence or abstinence? Washington, D.C.: World Bank.
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