In deliberating about economic issues, economist agrees on particular goals, which include economic growth, decrease in the unemployment rate and low inflation. In order to attain these goals, the federal reserve can take action via fiscal or monetary policies. Fiscal policy concerns taxes and spending while monetary policy involves the supply of money and the level of interest rates. Therefore, when either of these policies is not implemented properly, it can result in an economic downturn as reflected on the last year of the Bush Administration.
The last year of the Bush Administration experienced an economic downturn because the Fed used the expansionary fiscal policy to control recessions by stimulating economic growth. This led to federal debts, which affected the American economy. The Bush administration used tax cuts and expenditures to finance the Afghanistan and Iraq war, which resulted in severe deficits. Economists and lawmakers continue to blame record deficits on the Bush Administration’s fiscal policy, which aim was to boost the economy and stabilize the financial system. However, this policy resulted in increase long-term issues of large deficits and rising debt, which has led to an economic downturn. For instance, the deficit of the last year of the Bush Administration amounted $1.4 trillion at 10 percent GDP, which was the largest deficit relative to the economy since the First World War (Bessette and Pitney, 2013).
Therefore, the goal to promote economic growth via reduction of long-term deficits and debt would be achieved if the Bush administration did not use the expansionary fiscal policy. Giving the situation at that time, the Bush administration was supposed to employ the monetary policy, which could restore credit by increasing the money supply and pushing interest rates downward. This would help in reducing the long-term deficit, hence promoting economic growth.
Reference
Bessette, J., & Pitney, J. (2013). American Government and Politics: Deliberation, Democracy and Citizenship. New York: CengageBrain.com.
