Question

This week, you will discuss how you are affected by fiscal policy. For instance, you could write about how infrastructure projects in your community affect you and your community, and then how they affect the economy as a whole.

1. Please identify and explain an important infrastructure project in your city, state, or region that is currently underway or being discussed. Such a project could be an airport, a highway, a bridge, a light rail or subway system, a tunnel, new school buildings, new landfills and so on.
2. Please include information about the expected costs of the project, and how public spending on the project could stimulate the economy in your area. How would the multiplier effect work here? Do you think that spending on such a project would create new jobs beyond the project itself?

Answer 1

Consider a case when there is raised aggregate demand in the form of infrastructure projects which is a part of investments in the community. If AD shifts to its right, due to the fiscal policy, IS curve shifts rightwards and make output level higher at Y1 and interest rate higher at i1 point and making a new equilibrium at point B which shifted from point A. If the total output level have risen, producers need more labour to work for and the employment level rises in short run. Interest rate also rises which makes investments costlier for new investors.

In my locality which is a growing city in my state, is building airport right now which will make travelling easy for people. There are 2-3 airports at 4-5 hours drive from the city, and we are not expecting any direct long route flight from our city in initial phase but it totally depends upon the demand. So it would be very helpful to those who are taking connecting flights from the international airports.

The expected cost would be Rs.1000 crores to build the new airport. If the airport is built, new businessman will come here to invest in the city as it is currently growing. Multiplier refers to the income in return from the money invested for a specific project. The multiplier would be low at initial level as the flights would be very less in the initial phase. As time passes we would have direct flights other cities which would raise the income multiplier level. In some cases, it can raise new jobs in some it cannot. In this airport example, it raises jobs for pilot, jobs for cabin crew, jobs for aircraft agencies, food supplier for airport/aircrafts and many more.