International Economics Paper

International Economics Paper
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The president and the Congress can stimulate or contract the economy though the manipulation or control of the fiscal policy. Fiscal policy basically addresses the manner in which the government raises and spends money. Fiscal policy impacts the economy in one way or another. The biggest and therefore most vital way in which the government raises cash is through taxation. These taxes come from all the activities and levies, such as on products, or services like insurance, Medicare, and social security. Through this method, the government collects virtually three quarters of what it uses as its expenditure. Apart from this, the government gets cash trough borrowing from other sources. This is mainly done through the sale of its treasury bonds to its citizens. When it comes to spending, the total expenditure is usually done as outlined in the budget.
Now, the influence of the president and the Congress is when it comes to the budget proposal. Based on the state of the economy, the president will look at the budgetary proposal and take the proposal before Congress, which is the one to approve .Fiscal policy can be used to control the growth or contraction of the economy, through impacting money supply, which stimulates or reverts inflation.
The Federal Reserve also plays a big role in the stimulation or contraction of the economy. It impacts the monetary policy. Monetary policy means the sway or grasp that the government has, over the supply of money in the economy. The Fed can stimulate or contract the economy by adjusting the interest rates. If there is too much money in the economy, it might pose a risk of inflation, which has a subsequent effect of reduction in the value of the dollar. In order to control this, the Fed will increase the interest rates, which discourages the borrowing of money. If there is less money in the economy, it poses the risk of recession as a result of deflation. To control this, the Fed therefore reduces the interest rates, which in turn increases consumer spending through increased borrowing.
As highlighted earlier, there are a number of reasons as to why policy makers are motivated to stimulate or contract the economy. The risks posed by runaway inflation or deflation, such as recession or loss of dollar value, are the chief motivators. Policy makers are obliged to ensure that the budgetary deficits are maintained at reasonable lev...