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When the Economy is sluggish, it needs a lift to get back on track. The Federal government uses Fiscal Policy to attain macroeconomic goals. Fiscal Policy is the deliberate manipulation of the government purchases, transfer payments, taxes, and borrowing in order to influence macroeconomics variables such as employment, the price level, and the level of the GDP.


„h Fiscal Policy


There are two types of fiscal policy


Custom essays on economy


1. expansionary fiscal policy


. contractionary fiscal policy


The goal of expansionary fiscal policy is to reduce unemployment. Therefore, the tools would be an increase in government spending and/or a decrease in taxes. This would shift the AD curve to the right increasing real GDP and decreasing unemployment, but it may also cause some inflation.


The goal of contractionary fiscal policy is to reduce inflation. Therefore, the tools would be a decrease in government spending and/or an increase in taxes. This would shift the AD curve to the left decreasing inflation, but it may also cause some unemployment.


In 17, Chrysler losses reached $1 billion and total indebtedness was more than $5 billion spread among 50 different banks and institutions, heading toward Bankruptcy until... The United States government bailed out Chrysler with loan guarantees. At the time, the united state economy was in a ression. The united states felt the Federal loan guarantees would set a precedent for stabilising inefficient companies in declining sectors of the nation¡¦s economy and would result in a diversion of financial resources from America¡¦s growth industry.


¡§If Chrysler failed million Americans would feel a severe impact¡¨ Lee Iacocca


Chrysler reason for failure


„h The cost of complying with government regulations was higher for Chrysler than Ford or GM


„h US gasoline hysteria hurt Chrysler production


„h US moving into a recession


„h Foreign auto sales had negative effect on domestic market


„h The Chrysler bankruptcy would have been the largest in the US


When the federal government bailed out Chrysler with loan guarantees (no taxpayer dollars were given to Chrysler), the company made a host of concessions in exchange for the bailout. This included government oversight of Chrysler management and the issuance of stock warrants to the federal government. In 180, Chrysler bailout allowed the government to share in the appreciation of the automakers stock and Washington eventually made money on the deal.


Before the deal was struck, Chryslers bailout required executives and labor to contribute more than $600 million in pay cuts. The Government used fiscal policy to make the change in the government. Chrysler repaid everything and wiped the slate clean


Government Benefits


„h rise in unemployment rate of between 0.5% - 1.0%


„h Michigan unemployment rate up to 4%


„h Detroit up 10%


„h 1.5 billion a year in unemployment benefits from government if Chrysler failed


„h government made $800 million on interest and fees





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