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Respond to the following in a minimum of 175 words:
- Compare expansionary and contractionary fiscal policy.
- Discuss the limitations of fiscal policy during a recession.
- What fiscal policy has been adopted during the COVID-19 recession?
- How does the fiscal policy during the COVID-19 recession differ from normal recessions? Provide a minimum of 2 forms of difference.
- What monetary policy has been adopted during recent recession?
Expansionary fiscal policy, which the government typically uses to combat recession, entails increases in government spending and decreases in taxation, whereas contractionary fiscal policy, which the government typically uses to combat inflation, entails decreases in government spending and increases in taxation.
Fiscal policy has limitations in a recession:
There is a recognition lag, which means that during a recession there is a delay between when an action is actually required in an economy and when it is acknowledged in that economy. As a result of this delay, the impacts of fiscal policy are less effective.
Fiscal policy does not demonstrate its useful benefits during a recession because there is an administrative lag, which denotes that there is a delay between when an activity is recognized in an economy and when it is implemented in an economy.
Due to the operation lag, which occurs when an action is actually conducted in an economy before its consequences are seen in that economy on different variables, some of the advantages of fiscal policy have not been felt by the economy during the recession.
What fiscal policy has been adopted during the COVID-19 recession?
The Congress enacted the Coronavirus Aid, Relief and Economic Security (CARES) Act, which former US President Donald Trump then signed into law on March 27, 2020. To shield the American people from the economic effects of COVID 19, this measure creates a $2 trillion economic relief package. The CARES Act provides immediate and direct financial assistance to American workers, their families, and small business owners, helping to keep jobs in American industries. Through initiatives like Economic Impact Payments, the Treasury Department makes sure that American families and workers receive immediate, direct assistance following the coronavirus.
In contrast to a normal recession, the COVID-19 recession has a different fiscal policy:
The government invests a lot of money in the health sector during the COVID-19 recession to create hospitals and other medical facilities, as opposed to a normal recession when government investments are made in infrastructure.
In a normal recession, government spends on the public distribution system, but during the COVID-19 recession, it also invests on social programs like bread distribution programs to feed the nation’s impoverished.
As the nation worked to contain the epidemic, U.S. fiscal policy was created to keep individuals whole and ensure that they could pay their debts. Among the ways homes and businesses received compensation were:
benefits in addition to unemployment insurance
Employees who would not be eligible for unemployment insurance under standard systems, such as independent contractors, self-employed individuals, and gig economy workers, will get pandemic unemployment aid.
The Paycheck Protection Program gave small companies forgiven loans.