Question

What are the economic trade-offs inherent in implementing Fiscal Policy?
What are the political challenges inherent in implementing Fiscal Policy?

Each question must be 250 words and nonplagarized material please

Answer 1

What are the economic trade-offs inherent in implementing Fiscal Policy?

Fiscal policy is a tool used by government either by changing government spending or the levels of taxation. Government has to opt for fiscal policy as it helps in preventing economic crisis. Due to recession and financial crisis, most of the economists embraced government spending which is a tool of fiscal policy for economic growth and bring stability in the economy. The argument exists on which tool to use for economy’s betterment. Most of the economists squabble about government spending being better tool than tax cut during recession times.

There are trade-offs involved in implementing fiscal policy for example, if government uses expansionary fiscal policy to increase aggregate demand in the economy, real GDP will increase and lead to create jobs in the economy (reduction in unemployment), it will also lead to increase in higher inflation as unemployment and inflation goes indirectly by each other.

What are the political challenges inherent in implementing Fiscal Policy?

Fiscal policy is controlled by government so it has large impact on implementing fiscal policy for the betterment of the economy. Government influences economy as it controls the spending and revenue to be spent or circulated in the economy. Fiscal policies are mainly controlled by ministry of finance. Government can politically influence implementation of fiscal policy by bringing changes in the level of economic activity, pattern of resource allocation and by distributing the level of income.

Monetary policy in reverse has no political influence as it is directed and controlled by the central bank of country.