Question

This course designed to provide an understanding of market economies and the fluctuations they are subject to With this in mind , please answer the questions that follow . a ) Assume the economy is in a recession Discuss how the government could implement fiscal policy to deal with the recession and the steps by which fiscal policy moves the economy out of the recession ( Explain fully ) .b ) Explain how expansionary fiscal policy in the US would affect the economies of other countries .

Answer 1

---> governments adopts either expansionary or contractionary fiscal policy depending upon the situation of the economy. When government adopts expansionary fiscal policy,it will increase spendings and lowers taxes. When government adopts contractionary fiscal policy,it will reduce spendings and increase taxes.

a) When economy is in recession, expansionary fiscal policy is better to deal with the economic situation. When government increases spendings or lowers taxes,either way will lead to increased aggregate demand,increased business activities,job creation. All these inturn give a big boost to economic growth.

b) when usa government adopts expansionary fiscal policy, increased economic growth will leads to a stronger dollar value which in turn reduces the value of other currencies that are pegged to dollar ( ex: indian rupee).