Question

In: Economics

The government has many tools at its disposal to help create stability for an economy.

The government has many tools at its disposal to help create stability for an economy. Explain the best type of fiscal policy for our economy right now. Fiscal policy involves changes in government spending and/or taxes. Explain what has a more direct impact on stimulating an economy out of those two tools that can be used by fiscal policy.

 

Solutions

Expert Solution

The government has many tools at its disposal to help create stability for an economy, these tools comes under fiscal policy. It is of two types 1st is the Expansionary fiscal policy which includes tax cuts, transfer payments, rebates and increased government spending on projects such as infrastructure improvements. It is sdopted during recession to boost the economy and the 2nd is contractionary fiscal policy which is adopted to slow down the economy and hence control inflation.

As of now due to the COVID-19 pendamic the economy has slowed down and hence there is a need to stimulate the economy which can be done by an expansionary fiscal policy. This can be done by either increasing government expenditure or by decreasing (cutting down) taxes.

Out of the two given tools, the increase in government spending has more direct impact on stimulating an economy. This is because if government wants to increase its spending as a tool for expansionary fiscal policy to push the economy it will spend only on such goods and services which will increase the real output in the economy like infrastructure, education, training etc which will also increase the overall productivity of the economy in addition to increasing the income of people. But if there is a tax cut, though it will increase the disposable income of the people which must increase the aggregate demand but it may not be of the same level as the tax cut because when there is increase in income some portion of it goes for savings. So if people starts savjng more than the tax cut will not be more effective in stimulating the economy.


Related Solutions

If the Fed wishes to stimulate the economy, what tools it has at its disposal? Discuss...
If the Fed wishes to stimulate the economy, what tools it has at its disposal? Discuss two of these tools and with the help of an AD-AS model, demonstrate the effect on output and price-level.
If the Fed wishes to stimulate the economy, what tools it has at its disposal? Discuss...
If the Fed wishes to stimulate the economy, what tools it has at its disposal? Discuss two of these tools and with the help of an AD-AS model, demonstrate the effect on output and price-level.
How does the Federal Reserve implement its monetary policy; what tools are at its disposal, and...
How does the Federal Reserve implement its monetary policy; what tools are at its disposal, and how can those tools be utilized? Not less than 250 words and please include references.
If many analysts agree that a strong macro-economy is necessary for currency stability but not sufficient,...
If many analysts agree that a strong macro-economy is necessary for currency stability but not sufficient, what factors might account for the fact that, countries with sound fundamentals or macroeconomic policies may not be immune from currency crises and that government may have to regulate the market rather than leave it to work on it own?
During a recession, what specific actions in fiscal policy will the government do to help the economy? What specific actions in monetary policy will the Fed do to help the economy?
During a recession, what specific actions in fiscal policy will the government do to help the economy? What specific actions in monetary policy will the Fed do to help the economy? During an inflationary period and heated economy, what specific actions in fiscal policy and monetary policy will be expected?
1- Why is government spending an important factor in economic stability? 2- Create an excel document...
1- Why is government spending an important factor in economic stability? 2- Create an excel document that shows the year and cars you have bought in the past. For example: 2012 - Honda Civic Have you ever considered how frequently you buy cars? From this example, what is the average number of years (months) I take to replace a car? Any other interesting trend you see here? Any other example where you could use Excel for?
1.  The government of an economy has increased its spending and its taxes by the same amount....
1.  The government of an economy has increased its spending and its taxes by the same amount. What is the effect on investment? Use the long-run model of the economy developed in Chapter 3.
We are discusses the many aspects of the role of the government in our economy. The...
We are discusses the many aspects of the role of the government in our economy. The last few months have shown that the government can have a tremendous impact on our economy. Just think of those stimulus checks, or the extended unemployment benefits some people have received. On the other hand, did the government do enough during the Covid 19 pandemic--or did they not do enough? Since this year is a presidential election year, and you are, or should be,...
Arthur, the ruler of Avalon, has asked for your help with the economy of his country....
Arthur, the ruler of Avalon, has asked for your help with the economy of his country. Arthur's economic minister provides you with the following information: Work-eligible population: 30 million Labor force: 24 million Employed people: 21 million Frictionally unemployed people: 2 million Structurally unemployed people: 1.5 million Arthur would like to know whether his kingdom is enjoying an expansion or suffering a recession. See if you can advise him. Give all numeric answers to two decimals. King Arthur, right now...
“Adoption of the IFRS in many countries has various advantages. It will lead to economic stability...
“Adoption of the IFRS in many countries has various advantages. It will lead to economic stability in different countries due to the increased foreign investment and division of labour. There will be decreased transaction costs such as training, accountancy and audit fees for the foreign investors. IFRS greatly reduces earnings manipulation as it increases the transparency of the financial statements. There are mandatory disclosures in the off-balance sheet items that make it hard for the company accountants to manipulate the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT