Question

Why has the use of fiscal policy declined since the recession of 2001?

Answer 1

FISCAL POLICY

1. The government collects taxes from its citizens which contributes to the revenue of the government. The government spends its revenue in the building of the country’s infrastructure.

2. The fiscal policy emphasizes the use of government’s revenue and its expenses to stabilize the economy of the country. The policy also aims at keeping inflation under the control of the government.

THE RECESSION 2001

1. The time frame in the years beginning from 2000 saw a decline in the economies of the developed countries. The recession first affected the European economy during 200-2001, followed by the United States during the months from March to November, 2001.

2. While other countries including United Kingdom, Canada and Australia were successful in avoiding the recession, Russia, which was already suffering economic backlog during the years in 1990 decade, had started to recover.

FISCAL POLICY IN THE UNITED STATES

1. The United States implemented the Fiscal policy as a tool to recover from the economic recession but the long-term monetary effectiveness were seen to suffer.  

2. The recession during 200-2001 only threw light on the weaknesses of the Fiscal policy and its ineffectiveness in the long term.

3. Had the fiscal policy taken into account all the factors affecting economy and the importance of in-hand cash of an individual, the United States would have stabilized its economy efficiently through the implementation of fiscal policy.

DECLINE IN USE OF FISCAL POLICY

1. The above incident only indicates successful implementation of the fiscal policy in the short term thus, stabilizing the economy for only a short duration of time.

2. Owing to the above mentioned factors, the use of the Fiscal policy has seen a decline since the recession.

3. The policy was formulated ineffectively and implemented inefficiently only having short term benefits.

4. The policy was viewed as expansionary in spite of slowness of economic growth in the countries which implemented the fiscal policy as a reaction to recession in 2000 and 2001.