Forbes News Advisor
The selected event is from Forbes Advisor, and it answers the concepts of fiscal policies and the fluctuation of prices. Fiscal policies can be termed as the actions taken by the US government to regulate the economy and mitigate challenges in poverty (O’Connell, 2021). The policies impact microeconomic concepts such as price ceilings and price floors.
Fiscal Policy Tools
Fiscal policies are more visible when a country is undergoing economic contraction. The US federal government should prioritize expansionary policies between contractionary and expansionary policies. The main tools of fiscal policies used by the federal government are taxes and government expenditures (O’Connell, 2021). It is faster, given that its implementation is accurate, since it promotes profits by expanding the monetary supply.
Aggregate Supply (AS) and Aggregate Demand (AD.)
While aggregate supply addresses the total quantity of a country’s GDP, aggregate demand is the comprehensive evaluation of services and finished products a country requires to sustain supply and demand chains. The US is in short-run equilibrium because there has been an increase in demand, and the supply has reduced (Lock, 2022). Demand-pull inflation has driven inflation because the county cannot sustain its residents’ needs.
Recessionary Gap
Recently, the country has faced a recession, and banks have warned their clients against the deterioration of the country’s economy regarding investments. Inflation of fuel prices and other commodities promoted the recession gap, which can worsen in the coming years (Ponciano, 2022). Determinants of cost-push inflation and demand-pull inflation have accounted for the recession in the country’s economic development.
Mitigating Short-Run Equilibrium
Mitigating the short-run equilibrium challenges requires more government resources spending and reducing commodity taxes. Cutting taxes eliminates budget deficits for small business owners and residents, promoting monetary profits (O’Connell, 2021). The US will soon face higher prices due to heavy taxation of commodities, resulting in higher inflation.
References
Lock, C. (2022).Demand-pull inflation. Forbes.
Ponciano, J. (2022). US will fall into recession this year as ‘worrisome’ forces grow, Bank of America warns. Forbes. Web.
O’Connell, B. (2021). What is fiscal policy? Forbes.