The declaration of recession by the United States of America has been the official indicator that the country is indeed very much affected by the global financial crisis. The country is facing difficulties in many areas especially when it comes to the situation of their economy. This is clearly exemplified by an article that features President-elect Barack Obama urging the Congress to allow his administration to use the other $ 350 billion of the $ 700 billion rescue package.
The main objective of the Obama administration is to use the $ 350 billion of financial bailout funds to help the Main Street more rather than the Wall Street. This amount of money will become available to the Treasury Department within the span of 15 days unless the Congress will pass a law to prevent it (Kelley and Fritze). However, some Republicans clearly oppose the plan to spend more. They justified such position with their perspective that such plan will not be effective. These Republicans asserted that they will only support the spending if there are assurances that the money will not be misspent.
There are also some American citizens who are also skeptical about Obama’s plan because of the mismanagement of the first $ 350 billion during the Bush Administration. On the other hand, those who support Obama’s request understand the weariness of the people but they encourage them not to prevent the Obama Administration to use the funds because of their disappointment with the previous administration. President Obama sought to reassure the Congress by promising them that there will be transparency to the process and more money will be directed to address the foreclosure crisis.
This is in support with the letter sent by Obama’s economic adviser Lawrence Summers to the Congressional leaders that the country’s fragile economy entails them to act “both quickly and wisely” (Kelley and Fritze). The economic principle applicable to this article is fiscal policy. Fiscal policy pertains to the “deliberate changes in government spending and tax collections designed to achieve full employment, control inflation, and encourage economic growth” (McConnell and Brue 214).
In relation with this, the request of President Obama for $ 350 billion exemplifies fiscal policy. The situation of the country under which the President made this request is in time of recession. It is said that fiscal policy is most applicable in such kind of economic condition. During time of recession, an expansionary fiscal policy is a possible way to address the problem. A possible reason behind the occurrence of recession is that the profit expectations on investment project have dimmed which curtailed investment spending and decreased aggregate demand.
In this case, the federal government has three main options that it can use in order to stimulate the economy. These options are: (1) Increase government spending, (2) reduce taxes, or (3) use some combination of the two (McConnell and Brue 215). It is quite observable that President Obama opted to choose the first option, which is increased in government spending. A sufficient increase in the spending of the government can aid in pushing the economy out of recession.
This will address one of the problems in times of recession because increased government spending will also increase aggregate demand. Nevertheless, the initial increase in aggregate demand is not the end because the multiplier effect will increase the original money spent by the government. The greater shift in the aggregate demand curve due to the multiplier process that magnifies the initial variation in spending into more successive rounds of new consumption spending (McConnell and Brue 215-216).
Lastly, the political considerations that are observable in the article are also a part of implementing fiscal policy. This is due to the fact that fiscal policy is conducted in the political environment. As a result, economic considerations might be taken aside because of political concerns. It is also a common practice for politicians to rationalize actions and policies that are beneficial to one’s interest (McConnell and Brue 223). This is clearly proven by the opposite poles that the Republicans and Democrats have with regards to this issue.