Question

part A - Discuss challenges faced by state governments to keep their fiscal houses in order.

part B- Describe the reasons behind the new attention to the issue of income inequality in the United States.

Answer 1

PART A: the challenges faced by the government in maintaining fiscal houses are as follows:

● The expansion of fiscal policy results in a decrease of aggregate demand due to the crowding out effect in the economy.

● Many at times, the high government borrowings leads to increase in the interest rates which results in decrease of the aggregate demand.

● The economy can slow down due to the shortage of resources.

PART B: In 2019, the Census Bureau of America reported that the income inequality of the country has increased to the highest level in the last 50 years of the economy. The main reasons for increasing income inequality of America are as follows:

● Higher level of immigration of the less skilled labour.

● Decline of the working unions.

● Special norms placed by the executives.

● Compensations in the sectors have turned into competition.