Macroeconomics

Macroeconomics

Introduction

Fiscal and monetary policy plays an important role in lowering as well as increasing the budget deficit. The US government faces no funding pressures at present, as private-sector delivering and doubts about the global economic recovery are supporting demand for US Treasuries, keeping yields low. The budget affects the economic growth, as rating agencies have brought the economic challenges facing the US into stark relief by warning that they may take the once unthinkable step of downgrading its AAA credit rating. Standard & Poor's cited a material risk that the Obama administration and Congress will be unable to craft a credible medium-term plan to reduce the budget deficit (Cardarelli, 2000).

However, federal debt (net of debt holdings by government agencies) is forecast to raise from just under 38% of an eventual rise in US bond yields that would increase borrowing costs and curb growth prospects. The longer the government delays creating a plan to address the medium-term fiscal problem, which is rooted in federal pension obligations and government healthcare spending the greater risk of a spike in bond yields. The Republicans and Democrats have very different ideas about how to rein in the government's large fiscal deficits. The Republican plan to address the budget deficit through large spending cuts (including to healthcare benefits) has passed the House, but it is too Draconian to win support from the Democrats and, therefore, has no chance of passing the Senate (Easterly, 1993).

Discussion

Macroeconomics is the field of the economics that deals with how individuals change their economic behavior when there is change is the market-wide policies. Macroeconomics distinguishes the microeconomics in the approach that in microeconomics, market forces such as demand and supply are held constant and only individual behaviors of the variables have been studied. Macroeconomics on the other hand studies only variables of the market forces and nationwide policies that are implemented while putting the individual behaviors constant. One of the two applications that are widely studied in the macroeconomics is the Fiscal Policy and Monetary Policy (Micl, 2008).

The fiscal policy is the policy that is implemented to affect an economy. It includes the government revenues in the form of tax structures and the government spending. For instance, U.S. Congress and the President of the United States of America implement the tax policy and U.S. Federal Budget spending (Easterly & Rebelo, 1993). The other aspects of the fiscal policy are to implement the import duties or quotas on the particular goods that are being imported. The fiscal policy details on how the government spends substantial amount of funds on the domestic economy and salaries of the government employees. While the major areas of the fiscal policy is affect the government revenues and expenditures, its effects on the common man has much more than merely discussed above.

The government can either implement fiscal policy either in the form the expansionary or the contractionary fiscal policy. Expansionary fiscal policy deals with the lower tax structures and higher government spending. The effects of this policy can result ...