Question

In December 2017 the US Congress passed legislation that will reduce corporate and individual taxes by an estimated $1.45 trillion over 10 years. In what ways was this action similar to a conventional Keynesian counter-cyclical stimulus? In what ways did it differ? How would you evaluate its effectiveness?

Answer 1

Answer -

At the end of 2017 and early 2018, the US Congress passed two big pieces of legislation.
This signals a reduction in taxation and an increase in public spending.
The first is the Tax Cuts and Jobs Act (TCJA) 1.

A complete overhaul of the US tax system is involved in this.

According to the Joint Committee on Taxation (JCT, 2017), it is the non-partisan US Congress committee, a non-partisan committee of the US Congress.

Taxes are supposed to

be reduced by an

$1.5 trillion over 10

years has been projected.

On 22 December 2017, the President

signed it into law and took over.

On 1

January 2018, impact.

Its principal

provisions include 2.

Higher government, according to the Keynesian view, which has regained significance since the great recession,
Deficits can place upward pressure on inflation by stimulating aggregate demand (see, for example,
1936 Keynes). Increased private consumption by further government spending and (in the case of tax cuts)

In the short term, bigger deficits and spending increase aggregate demand and therefore drive up the production gap.

(which means it gets more positive or less negative),

In exchange, this induces upward inflationary pressures
(i.e. the relationship of the Phillips curve relating domestic economic activity to inflation). The Fiscal Impact
However, stimulation depends on a number of variables.

The fiscal multiplier tends, for example, to be state-dependent, i.e.
In difficult times, to be above one, but in good times, below one. This especially reflects the various monetary policies of monetary policy.
The fiscal stimulus reaction. In reaction to the economy, as it runs at or close to full potential,
The central bank will boost interest rates, which will increase the fiscal stimulus and inflationary pressures it creates.
Reduce private investment in turn.

Consequently, as a fiscal stimulus, the fiscal multiplier could be lower than one
Private demand crowds out. On the other hand, when the economy and monetary slack are considerable,
Policy is limited by the lower interest rate bound (i.e. in a trap of liquidity when monetary policy loses)

Economical traction), the central bank could not offset the effect of the fiscal stimulus by tightening the fiscal stimulus.

Currency strategy.

The subsequent rise in (expected) inflation pushes the real interest rate down, thus supporting the real interest rate.
A private investment. As a consequence, it is likely that the fiscal multiplier is above one. Other significant influences that decide the
For example, the macroeconomic effect of a fiscal stimulus includes its structure, the degree to which it profits,

Hand-to-mouth customers, the Phillips curve slope and aspirations of economic agents.