ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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the implementation lag is immediate
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the impact lag is too short
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poiltically increasing taxes can cause government loss of votes
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None of the above
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Detailed explanation-1: -Taxes are a fiscal policy tool because changes in taxes affect the average consumer’s income, and changes in consumption lead to changes in real GDP. So, by adjusting taxes, the government can influence economic output.
Detailed explanation-2: -Fiscal policy can be swayed by politics and placating voters, which can lead to poor decisions that are not informed by data or economic theory. If monetary policy is not coordinated with a fiscal policy enacted by governments, it can undermine efforts as well.
Detailed explanation-3: -Contractionary fiscal policy, on the other hand, is a measure to increase tax rates and decrease government spending. It occurs when government deficit spending is lower than usual.
Detailed explanation-4: -IMPLICATIONS OF HIGH FISCAL DEFICIT: Lesser amount of this money in turn leads to higher rates of interest charged on such lending. So, in simple terms, a higher fiscal deficit means higher borrowing by the government which in turn mean higher interest rates in the economy.