Discretionary and nondiscretionary fiscal policy

Analyze the difference between discretionary and nondiscretionary fiscal policy.

Explain the effects of discretionary and nondiscretionary fiscal policy on governmental revenue and expenditures.

Describe how discretionary and nondiscretionary fiscal policies are being used today.

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Sample Answer

Fiscal Policy

The total government spending has increased over the last five years. According to Amadeo (2021), the current government is spending is $4.829 trillion for the fiscal year 2021. The expenditure is increasing due to the efforts put by the U.S government to boost economic growth. Additionally, expenses on mandatory programs such as Medicare and social security have increased over the years, leading to increased government spending. However, the marginal federal income tax rate remained the same between the years 2019 and 2020. There was a slight decrease in the effective federal income tax rate from 12.96% to 12.81%, leading to a drop in federal income tax from $9,787 to $9,675 between the two years.

An increase in government spending can positively impact the U.S economy. As the government expenditure increases on social, economic, and physical infrastructure, the country benefits from economic growth. Additionally, the rise in government spending on the health and education sector has increased productivity and growth of national output over the years. Conversely, have a slight decrease in income tax raises individuals’ disposable income, motivating consumers to increase their spending. Additionally, the government makes slight changes in income tax to ensure equality among citizens spending and control growth in the country.

The fiscal policies have positive effects on many organizations. For instance, increase government spending on physical infrastructure such as roads makes the market accessible for many businesses. In this case, a production company can easily supply its product to direct consumers and expand its market to different parts of the country. Similarly, increased spending on the education sector will lead to improved skills for future labor. Conversely, a business can benefit a lot when there is a slight decrease in income tax. A reduction in income tax encourages increase purchases from consumers, hence an increase in sales for businesses. A company can increase its production rate when income tax decreases since consumers speculate about increased purchases.

Unemployment caused by COVID-19 is one of the primary macroeconomic events that has impacted the U.S economy negatively. When a large number of the population is unemployed, the economic production of the country decreases (Dean et al., 2020). During the pandemic period, the U.S economy was negatively affected due to the increased rates of unemployment. Similarly, the pandemic forced production businesses to reduce the number of employees leading to a reduction in production. Therefore, the increased unemployment rate during the pandemic had many negative impacts

The U.S. economic growth is expected to significantly increase in the next two years due to the fading COVID-19 pandemic. The economic growth will increase now that the pandemic rate has decreased and the rate of employment increases steadily. Additionally, the pandemic accelerated productivity trends such as telecommunicating, forcing many businesses to adopt new technology innovation. Increased innovation in a country is an indicator of a future increase in economic growth.

I would recommend a production company adopt the new technology advancement in production and communication to make it competitive in the current and expected economy. The latest telecommunication technology reduces expenses for companies, especially during meetings. The savings can be used in different areas of production, leading to the growth of the organization.




Amadeo K. (2021). How Congress really spends your money. The Balance. https://www.thebalance.com/current-u-s-federal-government-spending-3305763

Dean, E., Elardo, J., Green, M., Wilson, B., & Berger, S. (2020). How Economists Define and Compute the Unemployment Rate. Principles of Economics: Scarcity and Social Provisioning (2nd Ed.).

Trading Economics. (2021). United States government spending | 1950-2021 data | 2022-2023 forecast | Historical. TRADING ECONOMICS | 20 million INDICATORS FROM 196 COUNTRIES. https://tradingeconomics.com/united-states/government-spending

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