Fiscal and Monetary Policy: Recession & Economic Growth. Pros and Cons.

2 Pros and 2 Cons of using Fiscal and Monetary Policy Tools in the case of a Recession and Robust Economic Growth

Fiscal policy tool: Taxation

Recession and robust economic growth Taxation Pros on Unemployment:

1) Reducing income taxes can cause unemployment to decrease and provide an optimistic financial strategy for majority of the employed workforce. It also increases productivity and healthy business ethics, both of which are beneficial for businesses, employers, and overall commerce.

2) Reducing income taxes provides and is the majority of income for the government. Taxation gives the government the ability to function and the ability to focus on the publics' interests of expenditures in a specific sector of the fiscal policy.
Recession and robust economic growth Taxation Cons on Unemployment:

1) Entering and exiting recession can cause cyclical unemployment. Therefore, dependent on the economy’s current business cycle, increasing taxation during a recession will cause unemployment to increase higher and higher, lengthen the timeframe and term of economic growth from recession, and provide difficulty in projecting economic growth.

2) In a recessed economy, increasing taxation decreases worker productivity, income, and most importantly, the optimism of a workforce.
Monetary policy tool: Interest Rate

Recession and robust economic growth Interest Rate Pros:

1) Decreasing interest rates can assist to control a recession in the economy. By decreasing such rates, strength to sustain economic growth is foreseeable.

2) With regard to credit and lending, when the Federal Government appropriately continues to decrease interest rates and attempts to decelerate an obvious decline in a specific market or recover from a recession toward economic stability, the demand for lending and credit increases.

Recession and robust economic growth Interest Rate Cons:

1) Extraordinary interest rate increase can cause recession and may inadvertently decelerate economic growth.
2) Numerous and extraordinary interest rate increases can cause specific markets to suffer toward recession based on the lack of demand and overabundance of supply.

Still not sure how I see a reduction in taxation for the government as a “pro.” Even if I say that income tax is the main source of revenues the government can use to provide public goods or services? How could I possibly elaborate on this.

As a Tax "Pro" during a Recession toward Economic Growth, reducing taxes decreases unemployment and provides the workforce with a comfortable appetite of more income toward growth of monetary independence. By independence I mean that the people, subsequent to a recession, would not be as dependent on the assistance of Health and Human Services, such as welfare and unemployment during the recession. Health and Human Service is the largest sector of expenditure for the government. During an economic recession, so much more money and concentration is expended to assist those unemployed and newcomers entering welfare. Whereas, reducing taxes toward robust economic growth provides the government ease from Health and Human spending and provides them the ability to concentrate on other sectors. Also, when the economy is more healthy with reduced taxes and more income, consumers consume more goods and services; thus, more businesses are created, more businesses become more successful, and the more successful, the more philanthropic and charitable. In my opinion, I believe philanthropic and charitable donations can counteract a government's spending.

Overall, I would prefer to change taxes to smooth out the business cycle as opposed to public spending; as once a service is provided, it is hard to remove (i.e. all welfare programs).

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DowntroddenInDC 5 years ago from Houston, TX

I'm trying to put together an 'essential' reading list of economics related books. Check it out and help me with selections!

Grey Wolf 3 years ago

Thanks so much for this. I have an econ exam tomorrow, and this really helps :)

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