Introduction
The fuel diesel industry is a vital part of the U.S. economy and is heavily impacted by policy decisions made by the government. The fuel diesel industry is vital in providing energy for transportation, power generation and industrial activities. As such, any policy changes, both fiscal and monetary, will have a significant impact on the sector. This report discusses the federal budget and physical policy and how they will impact the fuel diesel industry over the next two years. It uses economic theories to support the conclusions drawn. Increased government spending and initiatives to reduce inflation will lead to a reasonable budget to sustain the fuel diesel industry in the next two years.
Overview of the current Federal Budget and Fiscal Policy in the Fuel Industry
The fuel diesel industry is under the department of energy, whose budget is cut across to support climate initiatives, energy, environment and nuclear security. The budget asks for $48.2 billion in discretionary financing for the Department of Energy, a 15.1% rise from 2021 established $6.3 billion (Budget of the United States Government). The budget entails $2.1 Billion, which will support the workforce, and $9.2 Billion for climate and clean energy. The physical policy will also guide infrastructure development, environmental equity and justice, research and innovation, and reducing health hazards.
Economic Theory
To understand how the federal budget and fiscal policy will impact the fuel diesel industry over the next two years, we must consider the economic theory behind these policies. The most relevant theory is Keynesian economics, which states that fiscal policy can be used to manage the macroeconomy by increasing or decreasing aggregate demand (Blinder, 2008). In this case, the fiscal policies implemented by the government are intended to stimulate economic activity and increase aggregate demand. The increased demand for goods and services resulting from the fiscal policies should lead to increased demand for diesel fuel, leading to higher prices and increased profits for the industry. At the same time, the reduced funds available for government programs could lead to a decrease in the resources available to the industry, which could reduce its ability to compete.
Expansionary and Contractionary Fiscal Policy
A fiscal policy is an economic policy that affects government spending and taxation. Expansionary fiscal policy refers to stimulating economic growth through the means of increased spending by the government and reducing taxation. This kind of policy is usually implemented during periods of economic recession in order to stimulate the economy. Contractionary fiscal policy refers to decreased government spending or increased taxation to reduce inflationary pressure (Moeti, 2007). This type of policy is usually implemented during periods of economic expansion to slow down the economic growth rate. Expansionary fiscal policy is generally seen as beneficial for the fuel diesel industry. An increase in government spending has a positive effect on the demand for diesel fuel, as it increases the purchasing power of consumers. This leads to an increase in diesel fuel consumption, which increases the profits of diesel fuel companies.
Furthermore, a decrease in taxation on diesel fuel has a positive effect on the industry, as it reduces the cost of production and encourages the consumption of diesel fuel. Contractionary fiscal policy, on the other hand, can harm the fuel diesel industry. A decrease in government spending reduces the purchasing power of consumers, which leads to a decrease in diesel fuel consumption. This, in turn, reduces the profits of fuel diesel companies. Furthermore, an increase in taxation on diesel fuel increases the cost of production and discourages the consumption of diesel fuel.
The current federal budget and fiscal policy status will significantly impact the fuel diesel industry over the next two years. In particular, the reduction in the discretionary budget and the shift of funds away from government programs will likely have a negative effect on the industry. This is because the industry relies heavily on government funding for research and development, as well as for infrastructure and other projects (Budget of the United States Government). With fewer funds available, the industry may be unable to access the resources it needs to remain competitive. In addition, the fiscal policies implemented by the government may also impact the diesel fuel industry. For example, the tax cuts and increased spending on infrastructure projects may lead to increased demand for diesel fuel, leading to higher prices and increased profits for the industry. On the other hand, changes to the interest rates paid on government debt may lead to higher borrowing costs for the industry, which could reduce profits.
Fiscal Policies to Close Recessionary and Expansionary Gaps
In order to close recessionary gaps, expansionary fiscal policy can be used, which involves increasing government spending and reducing taxation. Increased government spending leads to increased demand and employment rates, and these can be done when the government invests in infrastructural projects such as roads and schools in return for stimulating economic growth (Gravelle & Hungerford, 2019). It can also be done by reducing taxes on businesses and individuals, leading to increased consumer investments and spending.
The Rationale for Budget Deficits
A budget deficit occurs when government spending exceeds revenue. Budget deficits are often seen as undesirable, as they lead to an increase in government debt. However, budget deficits can be beneficial in certain circumstances. In periods of recession, budget deficits can be used to stimulate economic growth. This is because budget deficits lead to an increase in government spending, which in turn increases the level of economic activity. This leads to an increase in the demand for diesel fuel, which increases the profits of diesel fuel companies. Ike (2020) explains that with consumption and increased demand for oil, further spending is incurred, such as taking care of environmental issues that arise; thus, this could lead to higher budgets.
Furthermore, budget deficits can be used to finance public investment, which can lead to increased productivity and economic growth in the long run. However, budget deficits can also have adverse effects. If government spending is too high, it can lead to an increase in inflation and cause the value of the currency to decrease. This can lead to higher prices, reducing consumer spending and investment. It can also lead to a higher national debt, which can be challenging.
Conclusion
The current status of the federal budget and physical policy will significantly impact the fuel diesel industry over the next two years. The federal budget includes a range of spending initiatives, including an infrastructure plan, which will increase demand for diesel fuel and investment in clean diesel technology. These initiatives will increase diesel fuel prices and investment in clean diesel technology, which will benefit the fuel diesel industry. Reducing the discretionary budget and shifting funds away from government programs could reduce the industry’s access to resources. In contrast, the fiscal policies implemented by the government could lead to increased demand for diesel fuel and higher prices. Ultimately, the impact of the federal budget and fiscal policy on the fuel diesel industry will depend on how the government chooses to manage the budget and fiscal policy over the next two years.
References
Blinder, A. S. (2008). Keynesian economics. The concise encyclopedia of economics, 2(008).
Budget of the United States Government. https://www.govinfo.gov/content/pkg/BUDGET-2023-BUD/pdf/BUDGET-2023-BUD-9.pdf
Gravelle, J., & Hungerford, T. L. (2019). Can contractionary fiscal policy be expansionary?. Congressional Research Service.
Ike, G. N. (2020). Environmental Effects of Fiscal Policy, Oil Production and Renewable Energy in the Presence of the Environmental Kuznets Curve.
Moeti, K. (2007). Monetary policy and fiscal policy. Public Finance Fundamentals, 10.
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