Fiscal policy and monetary policy are the tools the government can use to try to
ID: 1220104 • Letter: F
Question
Fiscal policy and monetary policy are the tools the government can use to try to influence the financial sector. For example, the government can implement policies, such as tax cuts, to attempt to stimulate a sluggish economy. For example, you may be familiar with the first-time homebuyer’s credit, which the government offered to help stimulate the real estate market. Have you ever benefited from a tax cut?
For this assignment, you will participate in a discussion about how monetary policy and fiscal policy affect aggregate-demand curves.
Scenario The federal government and the Fed usually try to coordinate their efforts in order to keep the economy stable. However, there are times when the government and the Fed work against each other without intending to. For example, in 2012, Congress passed a universal healthcare plan called The Patient Protection and Affordable Care Act. This law was passed during a time when the Fed was working to stimulate economic spending through monetary policy. However, taxpayers knew that the new law would eventually result in higher taxes. Some economists argued that the passage of the law was one of the reasons that monetary policies had little effect as businesses and consumers continued to hold their money in anticipation of increased taxes.
Instructions
1. In a post to the discussion, respond to the following:
In what ways do you think The Patient Protection and Affordable Care Act might affect the economy? Explain your answer.
In what ways do you think this type of program affects the aggregate-demand curve? The aggregate-supply curve? Explain your answers.
Explanation / Answer
As on January 1,2014 more than 2 million people had selected a plan in the health insurance marketplace, and about 80 percent of those people will benefit from tax credits to help pay their premiums. All told, the Congressional Budget Office estimated that in 2014, 5 million people will benefit from premium tax credits and help with cost-sharing averaging $4,700 per person. In 2015, 11 million people were estimated to benefit, rising to 19 million in 2016. Several millions more will gain affordable health insurance coverage through Medicaid.
These provisions of the ACA make it simpler for families to access health care services and to meet other pressing needs, which will increase the demand for goods and services in the economy at a time when the unemployment rate is still elevated. The ACA spurs employment and would reduce unemployment over the next few years.
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