Question

Can someone answer all of the following questions

Question 3 (Value = 4)

Briefly explain the difference between expansionary and contractionary fiscal policy. Describe recent government actions in these terms.

Question 4 (Value = 6)

Public debt is the total amount owed as a result of past borrowing. In the context of this course, why does public debt exist. Is public debt a god thing or a bad thing?

Bonus Question (2)

The Bank of Canada recently dropped the overnight rate to 0.25%. Using your textbook and the class presentation material, briefly explain why the BOC has done this and what the expected impact will be.

Answer 1

3 First we discuss expansionary fiscal policy.

It is a type of policy in which government either reduce the tax rate or increase expenditure or both. A decrease in taxation rate means more money in hands of people in form of more disposal income. It causes inflation. This type of policy used to fight recessionary pressure.

Contradictory fiscal policy

It is type of policy in which government either increase the tax rate or decrease it's expenditure or both. An increase in taxation means less money in the hand of people. This policy Generally use to curb inflationary pressure.

4. Public debt exits because it is a most important source of finance. Most of the developing countries cannot able raise that much finance domestically to fulfill it's project and public spending. Public debt also needs to fill gap in the Budget.

Public debt is good or bad it depends on it's nature. If public debt is taken for a short term and for necessary project which are for development of a country then public debt is good.

On the other hand if government taking debt for long term and in high interest rate causes problem. Most of time government take unnecessary debt to benefit their voter by giving subsidies, cut rate tax more than enough. By doing this they want remain in power. So in such condition public debt are bad.

5 Whenever any central bank reduces rate of interest then it means it wants people spend more which ultimately causes growth.

When BOC reduces rate it means now people get loan at less interest rate. It causes people more money in the hands of peoples. People start more spending, set up new business which ultimately causes more growth, more employment and little bit of inflation but it managed.