U.S. Discretionary Fiscal Policy
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In Alan AuerbachÆs article ôIs There A Role for Discretionary Fiscal Policy?ö (Auerbach, 2002), the complex relationship between U.S. fiscal policy and GDP is examined in detail. One of AuerbachÆs points in the article is that ôàthe full-employment surplus has fallen in response to a rise in the Gross Domestic Product (GDP) gap, consistent with the use of discretionary, countercyclical fiscal policy.ö (Auerbach, p. 3, 2002) Although Auerbach feels that this relationship is weak and not statistically significant, his ensuing explanation shows that it is important to understanding how fiscal policy and GDP impact one another. He goes on to discuss other determinants of fiscal policy and points out that U.S. fiscal policy over the years has a record of yielding higher budget surpluses whenever there have been increased levels of national debt. ôWhen the lagged budget surplus is added to the regression, we end up with a statistically significant relationship where the higher the lagged budget surplus, the higher the fall in current full-employment surplus.ö (Auerbach, 2002, p. 5).
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Approximate Word count = 732
Approximate Pages = 3 (250 words per page)
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