What’s the best fiscal policy?
The text explains the connection between the state of the economy and the appropriate fiscal policy (assuming one leans towards the Keynesian school of thought). If output is too low, below the full employment level, then too-high unemployment is likely the main problem facing the economy. We should raise government spending or cut taxes. If output is too high, above the full employment level, then rising inflation is probably the main economic problem. We should cut government spending or raise taxes.
The text also suggests a connection between the state of the economy and the federal budget. When output is below full employment, it says a budget deficit is in order. When output is above full employment, it says we should run a budget surplus.
Use the first web site listed below to find the budget surplus or deficit for the last three years. Use the second web site to find the unemployment rate during those same years. Explain whether you think fiscal policy was appropriate during the last three years, assuming the economy is at the full employment level when the unemployment rate is 5 percent. Make your reasons clear. Additionally, consider the impact of the pandemic on both fiscal policy and the unemployment rate – are there any correlations you see?
The Congressional Budget Office is charged with providing nonpartisan analysis of the economy and the budget to Congress. Go to their home page (see the URL below), click on “Historical Budget Data,” and then select the Historical Budget Data – February 2021. Open the excel document, select the first tab at the bottom and write down the numbers for the past 5 years in the Total Deficit (-) or Surplus column.
http://www.cbo.gov/topics/budget
The Federal Reserve Bank of St. Louis maintains a free database of economic data called FRED. Go to the page (find the URL below) and search on Unemployment.
Click on the Unemployment Rate report.
https://fred.stlouisfed.org/
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