Whenever a country enters a recession, there are two classes of responses available: fiscal and monetary policy responses. Fiscal policy responses focus on taxation and spending while monetary policy responses refer to Central Bank activity. In the United States, fiscal policy is administered by the Federal Reserve. The Fed is responsible for influencing the quantity of money and credit in the economy. During the Covid-19 pandemic, the Federal Reserve was responsible for issuing treasury bonds to finance fiscal policy decisions.
The G Word with Adam Conover – Fiscal Stimulus During Covid
The Covid-19 pandemic and subsequent lockdowns sent the US (and world) economies into an immediate recession. The US experienced record high levels of unemployment and a massive reduction in GDP. To counteract this recession, the federal government enacted a series of expansionary fiscal policy recommendations that increased the aggregate demand curve to account for the previous reduction.
Christmas Vacation: Expected Future Earnings
Clark is hoping to get a big Christmas bonus, but his boss sends him a gift for a jelly subscription instead. Consumption is one of the components of aggregate demand, and future income can influence present consumption. Clark was planning to spend this income on a new swimming pool for the family and already spent some money on the deposit for the pool assuming he would get this bonus. He even notes that there isn’t enough money in the bank account to cover the check he wrote. His current consumption was based on an expectation of future income.
Thanks to Mandy Mandzik for the clip recommendation. Check out her working paper, All I Want for Christmas is an A on My Econ Final: A Holiday-Themed Review Class, for more Christmas-themed economics examples.