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Fiscal Policy & Criticism of Fiscal & Monetary Policy
Transcript of Fiscal Policy & Criticism of Fiscal & Monetary Policy
How is it Effective? The Negative Effects of Fiscal Policy Expansionary & Contractionary Fiscal Policy Expansionary - decreases in taxes, increases in spending
- Result: Budget deficit increases/ budget surpluses decreases
Contractionary - spending decreases and tax revenue increases
- Result: Budget Deficit increases /budget surplus decreases What is Fiscal Policy? Fiscal Policy &
Criticism of Fiscal & Monetary Policy The View of the "Keynesian"
The Effects of Expansionary Fiscal Policy
"Keynes" believed in conducting an "Expansionary Fiscal."
- believed it could fight recession
To eliminate recession, must run a budget deficit .
- Causes Aggregate Demand to shift
Expansionary provides a way out of recession. Secondary & Contractionary Effects
Keynesians believe "Contractionary can fight inflation.
Fiscal Policy Affects credit market conditions
- government reduces spending's/ borrowings, funds are available
-Aggregate Demand (demand for goods) decreases.
Rise in aggregate demand /lack of borrowing/ spending Government borrows funds , funds available decreases.
- Result: interest increases/aggregate demand decreases.
Expansionary : decreases net exports, affects output/ income. By: Tatiana Rice, Ria Baldoz,
David Godoy & Jhaniel Resma The Fiscal Policy How the Government influences the economy
Legislative and Executive Branch controls Fiscal
Two instrument: Spending & Taxation
- government collects taxes to finance services
decreases taxes >more money Budget Deficit & Surpluses
What are they? Budget Deficit-When government spending's exceeds taxation
- Government spending - Tax revenue
Budget Surplus- government spending's less than taxation
- Government spending's - Tax revenue
Balanced Budget- spending's equal to tax revenue Criticism of Fiscal Policy
(Positive Effects) Criticism of Monetary Policy
How it is Effective or Negative Fiscal Policy Criticism of Monetary Policy flow of cash restricted
→ -decline in spending
→ -failure to sell products
→ -factories close
→ -people laid off
adverse feedback loop
2007 Fiscal Policy Debate The End