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It's one I already wrote but want to condense it a little.
According to our text, the autonomous spending is considered automatic and necessary, does not depend on the level of GDP, and has a multiplier effect (Hubbard, O'Brien, 2014). It goes on to state that a multiplier effect is "the process by which an increase in autonomous expenditure leads to a larger increase in real GDP." In the 1990s there are three major policy changes that were independent of GDP but had a multiplier effect
First, under the Clinton administration, the tax policy was amended. Corporate tax increased in the top bracket to 35%. Income taxes also increased for the wealthiest 1.2% of taxpayers to 39.6%. Clinton, through executive order and the federal government extended the tax base for Medicare FICA taxes (resulting in a decline of the Federal deficit). Expansion of the Earned Income Tax Credit which helped low-income families. As well as the expansion of the child tax credit which bolstered the middle class. All of this contributed to boosting the supply and demand, impacting GDP in a positive manner (Luke, 2014).
Secondly, there was a vote to increase minimum wage. This impacted more than 10 million Americans, which, through extended means, impacted the median household income. This increase in household income widened discretionary spending, causing a multiplier effect and impact to GDP (Luke, 2014).
Finally, The North American Free Trade Agreement (NAFTA) between Canada, the US and Mexico was enacted, and as a result of the agreement, trade between the 3 countries increased dramatically and investment between countries surged (Luke, 2014).
The multiplier effect: The government created specialized insurance plans for older people that proved to be extremely beneficial. Programs like the Health Insurance Program, Medicare Modernization act/Medicare Advantage, and supplementary medical insurance began to function more efficiently and demonstrated positive results. Forecasting future spending related to Medicare, Social Security, and the like became simpler and more consistent. There was a release of funds for governmental spending programs allowing law makers to function better and accomplish more (Nesvisky).
