Green Choi

Professor Kerry MacNamara

ECON 2020- Macroeconomics
December 13, 2016
E-Portfolio Essay
When considering President-elect Trumps plans for the economy, as students
of economics, it is imperative to investigate how Trumps proposed policies may
impact the overall economy within the United States. During his presidential
campaign, the president elect has mentioned that he would cut taxes while also
increasing government expenditure on infrastructure projects. If these fiscal and
monetary policies were to be implemented during Trumps administration, it is also
necessary to examine how the polices would positively or negatively impact the
overall GDP, interest rate decisions by the Fed and what decisions the Feds will
make in the future to affect the interest rates in the United States.
When discussing about the influence of economic change, fiscal and
monetary policies are two policy terms economists refer to when describing how
institutions and regulators can affect the economy on a broader scale. Fiscal policy
refers to the government spending that influence macroeconomic conditions.
Through fiscal policy, regulators attempt to improve unemployment rates, regulate
inflation, and influence interest rates to control the economy. On the other hand,
monetary policy refers to the actions of a central bank, currency board, or other
regulatory committee that determines the size and the growing rate of the money
supply to influence the interest rates. By modifying interest rates, control of

government bonds, and bank reserves, the monetary regulatory institution such as
the Federal Reserve System can greatly influence the monetary policy.
When Trump speaks about the increases in government expenditure while
attempting to decrease taxes, this is an expansionary fiscal policy which attempts
to grow the economy by increasing employment rates. Although increased
government spending can be positive for the growth of the economy, it is possible
to have a crowding out effect due to the decrease in available funds that occurs
from the lack of taxation. The crowding out effect leads to an increased interest
rates that can lead to a reduction of private investment spendings. With this in
mind, the increased interest rates lead to a decrease in economic output and GDP
due to funds to be invested increases. Furthermore, as a higher capital is needed by
the private sector to initiate in expansionary plans, this is also another reason why
GDP levels can drop off significantly as a result of this policy. In contrast, since
Trump has emphasized that much of the government spendings will be directed
towards infrastructure projects, we can assume that the economic sector that is
involved with the development and maintenance of infrastructure will see much of
the economic growth.
Due to these policies, as of today, the 10-year treasury yields have shot up
from 1.8% to 2.1% after Trumps election as president. Some investors and stock
holders are now starting to urgently sell their assets due to the amidst fear that
Trumps economic plans may lead to a massive deficit spending with the lack of
taxation. In the near future, the Federal Reserve will most likely increase their
interest rates as many as four times this year. Although the interest rates are
currently at a near zero percent, the Fed will likely increase it due to the rising
inflation rate with the addition of Trumps barriers to engage in international

commerce by adding barriers to the import of foreign goods and his desire to
withdraw from NAFTA. With the fed expecting the interest rate to have a target zone
of 0.25- 0.5 percent and with those rates most likely increasing next year by
significant margins, the Fed will probably sit down and discuss how they could
possibly lower interest rate and keep the increasing inflation under control.
This assignment and the class overall has helped me improve my critical
thinking abilities. For example, by learning about economics, I gained a more indepth perspective as public policies are set by the countrys political
representatives. Not only does public policies set the nations political agendas, but
also how economic shifts such as interest level rates, GDP, fiscal and monetary
policies can have a dramatic effect in the global economy. All in all, the class has
taught me to think about many of the plans set out by the United States and the
real world consequences and impacts that many of these policies have the power to
affect.

Sources
http://www.econlib.org/library/Enc/FiscalPolicy.html
http://www.nytimes.com/interactive/2016/business/economy/fed-raise-interestrates-explained.html\
https://www.donaldjtrump.com/policies/economy
http://time.com/4495507/donald-trump-economy-speech-transcript/