Macroeconomics Report: Fiscal Policy Analysis in the US Economy

This report provides an analysis of US fiscal policy, focusing on the federal budget, tax policies, and deficit spending. It examines the impact of fiscal policy on economic growth, government expenditure, and the role of expansionary and contractionary measures. The report references articles discussing the federal budget's impact on various departments, tax reduction proposals for corporations and individuals, and the increasing federal deficit. It explores how fiscal policy influences capital markets, interest rates, and government expenditure during economic downturns. The analysis highlights the countercyclical nature of US fiscal policy and the role of automatic stabilizers in mitigating financial crises, concluding that the fiscal policy adopted by the government is crucial for determining fund allocation, stabilizing economic growth, and influencing the direction of the economy.

Running head: MACROECONOMICS
MACROECONOMICS
Name of the Student
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Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
Articles related to Federal Budget, taxes, deficit spending in US...................................................2
Conclusion.......................................................................................................................................3
References........................................................................................................................................4

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Introduction
The study highlights on the US economy’s fiscal policy that is analyzed based on the article
related to federal budget, taxes and deficit spending. Fiscal policy refers to the changes that the
government of the respective nations makes in their federal budget for influencing the growth of
the economy. Fiscal policy is classified in two types- expansionary and contractionary fiscal
policy. Expansionary fiscal policy refers to the policy that the government adopts during
recession that aims in increasing aggregate demand through rise in government expenditure or
decline in taxes (Afonso & Sousa, 2012). On the contrary, contractionary fiscal policy is
implemented during inflation for decreasing aggregate demand through reduction in government
expenses or rise in taxes.
Articles related to Federal Budget, taxes, deficit spending in US
The articles relating to federal budget of US reflects how the budget prepared by present
president makes cuts in the nations program. This article highlights that not all the departments
will suffer from the budget proposal of Donald Trump that covers $1.1 trillion of discretionary
expenditure for the year 2018, $52 billion for defence department and $2.8 billion for security
department. In addition, the budget proposal also reflects that additional amount of $1.5 billion
will move towards transport and illegal immigrant’s removal (Corsetti et al., 2013). In order to
build –up the defense sector of the economy, the president slashed their budget in other sectors
also. However, there would be reduction of 16% in Health and Services department, 14% in
Education department and 29% in State department. Therefore, it is predicted that this budget
proposal will keep the expenditure at same level. As US has recovered from recessionary period,
this federal budget will influence on the total aggregate demand of the economy.

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The article on US tax reflects that Donald Trump has unveiled plan for overhauling tax system of
this economy. The tax proposed by US president highlights proposal of tax reduction for
corporations as well as individuals. Implementation of tax cuts will not benefit the wealthier
individuals in this country (Afonso & Sousa, 2012). Moreover, this will seek in facilitating poor
families owing to increase in credit for child tax. In addition, tax reduction in corporations from
35% to 20% will improve their business productivities and profitability level.
The deficit spending of federal government records to $668 billion in this year. Recent study
reflects that there has been $82 billion increase in spending from the last year. This deficit
increased to 3.5% of this nation GDP in this year. It is well known that deficit higher than growth
of US economy adds to nations debt burden and leads to rise in borrowing cost. This article
highlights that social security spending increased to $29 billion and spending in health sector
rises to $ 22 billion. Thus, US president implements this expansionary fiscal policy in order to
decrease unemployment level and enhance economic growth.
Economic Analysis
Fiscal policy influences the capital markets in two ways – Government expenditure and tax
policies. It helps in generating budget deficit or surplus that in turn reflects that the government
of the particular economy contributes in either financing investment or private investment.
Moreover, the impact of fiscal policy also influences interest rates, levels of deficit, personal as
well as capital expenditure and is usually linked with monetary policy. In US, federal fiscal
policy has been basically countercyclical. US government expenditure generally arises during the
period of economic downturn. The disparity between government expenditure and revenue tends
in leaning against fluctuations in business cycle. The countercyclical characteristics of fiscal
policy occur in part with the help of automatic stabilizers. When the US economy fell into

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recession, government expenditure on programs namely unemployment insurance rises, as more
people in US need financial assistance. The present state of fiscal policy adopted by federal
government helps in mitigating the effect of financial crisis in the US economy.
Conclusion
It can be concluded from the above report that fiscal policy adopted by government helps in
determining allocation of funds in various sectors. It plays a vital role in influencing the direction
of the economy. The budget prepared by US Federal government and their activities regarding
taxation as well as spending helps in stabilizing economic growth of this nation.

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References
Afonso, A., & Sousa, R. M. (2012). The macroeconomic effects of fiscal policy. Applied
Economics, 44(34), 4439-4454.
Corsetti, G., Kuester, K., Meier, A., & Müller, G. J. (2013). Sovereign risk, fiscal policy, and
macroeconomic stability. The Economic Journal, 123(566).