Government and individuals across the globe have to regularly make decisions which are aimed at ensuring that they spend the available financial resources in an efficient manner. When this is the case, it is important to understand that some spending needs must be met in order to ensure the smooth running of affairs. Autonomous spending which is a part of aggregate expenditure is considered as necessary and automatic and does not an essential factor in the income levels of a nation’s economy. However, governments have to make conscious decisions which are aimed at ensuring that the expenditure needs are met even in times of financial crisis.
Change in autonomous spending in 1980-1990
The United States witnessed a 3.4 percent annual growth rate in its economy which led to consumer spending by 2.6 percent between 1990 and 1995 (Su, 2001).However, in this period, the productivity growth was slower at 1.5 percent per annum since most of the government autonomous expenditures were on technologies and computers which did not produce positive economic growth. Consequently, businesses were forced to downsize and contract outside expertise to minimize costs and survive the harsh economic times. In the early 1990s, the US economy further moved into a recession slowing the productivity growth further. The federal government was profoundly affected by this recession since it had a $ 215 billion deficit in its budget in 1990-1991 which skyrocketed to $298 billion in 1992 (Su, 2001). Ultimately the federal government had to make changes to fill in the deficit through the implementation of selective economic stimulation and deficit control policies which resulted in a budget surplus in 1998.
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Multiplier Effects of Fiscal Policies Implemented By the Federal Government
The recession and weak productivity witnessed the federal government come up with fiscal policies aimed at accelerating economic growth. The multiplier effects of the fiscal policy implemented were a surplus in the previous reported government’s budget deficits (Frankel & Orszag, 2001). In addition, there was a significant increase in consumers real spending on durable items such as motor vehicles at 6.3 percent between 1990 and 2000 up from 5.7 percent between 1980 and 1990.
References
Frankel, J & Orszag, P.R . (2001). Retrospective on American economic policy in the 1990s. Brookings. Retrieved from https://www.brookings.edu/research/retrospective-on-american-economic-policy-in-the-1990s/.
Su, B.W. (2001). Employment outlook: 2000–10: The US economy to 2010. Monthly Labour Review. Retrieved from https://www.bls.gov/opub/mlr/2001/11/art1full.pdf.
