The CARES act is a real-life example of a fiscal policy that we are currently living through.
Respond to at least two of your fellow students’ and to your instructor’s posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.
Rebecca Cline
Part 1
My understanding of fiscal policy is that it is the means that government uses in order to influence the economy. The government can use taxation or spending in order to reach the macroeconomic goals (Gwartney et al, 2018). The act that I have chosen to look at for this discussion post is the Coronavirus Aid, Relief an Economic Security (CARES) act. There are both pros and cons to the CARES act. The pros are that the act made changes to the unemployment insurance system, provided payroll support that allowed small businesses to continue to operate, and provided stimulus checks to anyone who qualified and filed taxes. The cons that are associated with the CARES act is that there has not been an audit of companies that received funds in order to assure the money went to where it was intended to go, no protection for workers, and called for industry bailouts in an attempt to save jobs (Bivens, & Shierholz, 2020). It is my belief that the CARES act would fall under the category of expansionary fiscal policy due to the fact that it was intended to provide enough funds for individuals to be able to pay their bills and still have some discretionary funds leftover. The CARES act was also intended to help businesses remain open. On the supply side of economics, the extra money that was provided to individuals was intended to be spent in order to keep the economy going and to allow businesses to continue to provide employment and to keep their doors open.
Part 2
The CARES act is a real-life example of a fiscal policy that we are currently living through. The CARES Act cost the government approximately 2.3 trillion dollars. The CARES act was passed in March of 2020. The estimated breakdown of where the funds was distributed can be found in the image below (Snell, 2020).Disc 1 (2).png (Snell, 2020)The CARES act allowed for redistribution of economic gains. This allowed the lower income population to gain more than any other population. The CARES act has allowed for there to be changes to personal and business tax codes. By the end of 2021, the loss is estimated to be $89 billion to the government. In the next eight years, it is estimated that government will recoup $63 billion in lost revenue due to higher revenues (Paulson, 2020). Due to the United States borrowing money in order to offer the CARES act, the crowding out private capital. This can have long term effects on the economy including wages and GDP. The higher federal debt that is in place now can crowd out the formation of productive private capital. This would lead to the decrease capital which would lead to less productivity (Gwartney et al, 2018). The CARES act will likely lead to a small decline in GDP. Future fiscal policy will be needed in order to reduce federal debt.
Resources:
Bivens, J., & Shierholz, H. (2020, March 25). Despite some good provisions, the CARES Act has glaring flaws and falls short of fully protecting workers during the coronavirus crisis. Economic Policy Institute. https://www.epi.org/blog/despite-some-good-provisions-the-cares-act-has-glaring-flaws-and-falls-short-of-fully-protecting-workers-during-the-coronavirus-crisis/.
Gwartney, J. A., Stroup, R. L., Sobel, R. L., & Macpherson, D. A. (2018). Macroeconomics: Private and public choice (16th ed.). Retrieved from https://www.cengage.com
Paulson, M. (2020, April 8). Short-Run Economic Effects of the CARES Act. Penn Wharton Budget Model. https://budgetmodel.wharton.upenn.edu/issues/2020/4/8/short-run-effects-of-the-cares-act.
Snell, K. (2020, March 26). What\’s Inside The Senate\’s $2 Trillion Coronavirus Aid Package. NPR. https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package.
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