Ecn 211 Lesson 8 Short Answer

840 Words4 Pages
1. Begin by explaining fiscal policy. 2. Describe expansionary and contractionary fiscal policies. Identify the situations in which expansionary fiscal policy and contractionary fiscal policy would be used. 3. Provide examples of fiscal policy being used in both the past and present day. 4. Examine any downsides to fiscal policy such as fiscal lags, the impact on national debt or other issues Fiscal Policy The broadest and most general definition of Fiscal Policy is its direct relation to governments spending and its revenues. Fiscal policy truly became its own topic during the depression in 1929. It became a tool for the government to deal with cyclical and non-cyclical aspects of the U.S economy. It is also based on the fiscal theory of KEYNES (Eaton, G.). This theory gives government the ability to affect macroeconomic productivity levels by changing the tax rate or spending levels. Expansionary & Contractionary Fiscal Policy 2. Expansionary Fiscal Policy: This type of fiscal policy is directly related to stimulating aggregate demand. During a recession, government will either increase in purchasing or lower taxes in order to stimulate aggregate demand. Ultimately this is used to illicit a raise in GDP levels (Fiscal Policy). 3. An example of this would have been Obama’s Economic stimulus package. This is an expansionary policy as it pulls from money we may not even have as a country in order to avoid a serious collapse due to the population being cautious with their income causing a stall in the economic growth of the country. Therefore, with an economic stimulus package, people were more willing to spend their money (possibly even more than the stimulus was) and take out loans which all raise the GDP for the country as well as improve investor confidence in the market as a whole (Eaton, G.). 2. Contractionary Fiscal Policy: This fiscal policy is

More about Ecn 211 Lesson 8 Short Answer

Open Document