Question

Fiscal policy is a good thing for the economy? In what ways may it be bad and/or good for the economy? If you could choose between Keynesian Fiscal Policy or letting the economy self-correct what would you choose? Why?

Answer 1

• Fiscal policy relates to raising and spending money in both quantitative and qualitative terms.
• Fiscal policy influences the decision making of government regarding what amount should be spend in the economy. It is also related to tax regimes of a country.
• If used in the right way, fiscal policies always do good for the economy. But there are some drawbacks as well.
• In order to mobilise the resources for increased spending by the government, there may be a hike in taxes as well. This might be a disincentive for the tax-payers in earning more. Higher taxes will decrease the disposable income with the citizens.
• Sometimes a fiscal cliff might emerge while dealing increased welfare activities. Fiscal cliff is a slow down from the steady growth when cut down of tax concessions and cut down of fiscal deficit happens as a part of consolidating the fiscal position.
• Choosing between keynesian way of fiscal policy or letting the economy self correct depends upon other characteristics of the economy. Because 'one size fit for all' cannot be used for deciding fiscal policy.