ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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unemployment will rise
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taxes will have to raise
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equilibrium price wil rise
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government spending will have to be cut
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Detailed explanation-1: -Fiscal policy means using either taxes or government spending to stabilize the economy. Expansionary fiscal policy can close recessionary gaps (using either decreased taxes or increased spending) and contractionary fiscal policy can close inflationary gaps (using either increased taxes or decreased spending).
Detailed explanation-2: -Fiscal policy affects aggregate demand through changes in government spending and taxation. Those factors influence employment and household income, which then impact consumer spending and investment. Monetary policy impacts the money supply in an economy, which influences interest rates and the inflation rate.
Detailed explanation-3: -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-4: -Policy Lags: Forecasting: Correct Size and Nature of Fiscal Policy: Fiscal Selectivity: Inadequacy of Fiscal Measures: Adverse Effect on Redistribution of Income: Self-offsetting Effect: Reduction in National Income: More items