Question

-why is fiscal policy important in these topics? 1. cash for clunkers 2. crowding out 3. Longterm impacts of deficit spending 4. Ricardian Equivalence theoreom -How much Gov. pay? -why fiscal policy used? -why was it successful?

Answer 1

Fiscal policy is important in the above topics because all the above programs involve increase in the level of government spending to meet the targets set by the government. Cash for clunkers is a government program to increase the use of fuel efficient cars and thus involve spending on behalf of the government. Crowding out also involves increase in the spending of the government which increases rate of interest and thus lowers investment level in the country. Deficit spending and Ricardian Equivalence theorem also involve increase in government spending. All the above topics have a pivotal role of government spending and thus fiscal policy is important in these topics.

Fiscal policy is mainly used to change the growth rate of output in the economy by changing the level of government spending and tax revenue of the government. The use was mainly highlighted by Keynes and fiscal policy helped the U.S. economy move out of 1930s depression.