With concerns over an impending downturn, it seems that fiscal policy has become more popular among policy makers and politicians. In United States, politicians are being caused by the downturn in the economics from across the political spectrum to assert for varying levels of expansion. Are we becoming Keynesians, as Nixon said from the 60s? Policy is therefore influence the cycle and growth, and the authorities try to influence Aggregate requirement AD. In case the government want to boost domestic demand, they could cut taxes and increase government spending. The disposable income increases of customers. This may cause higher levels of financial growth.
The drawback of fiscal policy is the government will need to borrow so they can finance the tax cuts. This increases interest payments that are future and the national debt, which the tax payer should repay. Can influence the level of economic action, though theoretically the authorities. In practice it might be tough for the authorities to handle demand as far as it’s. Spending may not promote if consumer confidence is low. The reason is they would rather save the tax cut to spend. This scenario is especially likely when taxes are cut for that the rich, high income groups have a lower marginal d to consume.
This occurs when higher authorities spending and borrowing lead to a corresponding decline privately sector investment and spending. The reason is the authorities spend more, but borrow from that the private business. In case the private sector buy authorities bonds, it means they’ve less income to spend and invest. The authorities is merely diverting resources from that the private business to the public business, and for that reason there’s no increase in overall Aggregate Demand. Government spending can be more inefficient than the private business.
In addition higher levels of borrowing might push up rates of interest, further crowding out private sector spending. They say that from a genuine recession, private business resources are under utilised and for that reason, the government is merely helping to jump start the economy. More on fiscal policy and the financial mistakes of politicians. He enjoys writing articles on Economic and he edits a site – Economic Help. For his latest financial essays and analysis visit his Economics Blog.