Current fiscal policy and its effects on the overall economy - Article Example

Fiscal Policy and Its Effect Fiscal Policy and Its Effect Democrats and Republicans jointly disclosed a 012trillion deal that will reduce spending, increase federal workers’ pay, and affect all American’s activities. It is a break from years of congressional funding fights and forced budget cuts. The policy may be the biggest decision from the congress this year because it sets America’s local and international concerns (Desjardins, 2014). The policy will increase military personnel and federal worker’s salaries and that will the raise in a record three years.

It will shield some military spouses and disabled spouses from pension cuts. From the Democrats’ view, half of the increase, $ 1 billion, will meet one of Obama’s administration priorities, that is, to help children below the age of three. From the Republicans, it is a cheer because it is $164 billion less than Bush’s last budget (Desjardins, 2014). Any reasonable person with an interest to improve the American economy cannot compromise the policy. The idea to extend unemployment insurance, Bush tax cuts, enhance business expensing, and reduce payroll tax rates is good for the American economy.

It is, however, risky to tune the economy through the policy alone. They need to monitor it well to prevent inflation. Government spending multiplier in this case is the ratio that the change in America’s income level will be affected by government spending. The multiplier measures the effect of the fiscal policy on subsequent levels of a country. The increased government spending results to an increase in consumption and a cycle of wealth creation. In forecasting the policy’s effect, a multiplier that exceeds one shows that the spending at the national level has been enhanced.

With continuous consumption, demand develops from the initial levels and leads to multiple effects of wealth. ReferencesDesjardins, L. (2014). Pushing past partisanship, Congressional leaders back $1 trillion spending bill. CNN, 1, 2. Retrieved July 20, 2014, from http://edition.cnn.com/2014/01/13/politics/congress-spending/