Questions tagged [fiscal-policy]
the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.
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Combining wealth and income tax
Did any country ever tried to combine wealth tax and income tax into one taxation policy? For example an income tax which has rate that is dependent on net worth, or some other tax of this manner?
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Difference type of crowding out effect in economics
In macroeconomics I came across two type of crowding out. First, in IS LM model where in classical case, when LM curve is vertical increase in government expenditures have no increase in output i.e. ...
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Spending despite fiscal deficit
This is going to be a rather simple question. Surprisingly, I did not find quite a lot of answers satisfactorily explaining my point.
The question goes like this-
The USA, under the Trump regime, ...
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1answer
29 views
What does it mean by Global recession?
I am bit curious to understand what it actually means when I read global recession is coming soon. There are some questions which pop in my mind reading such news. Some of them are:
What causes ...
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Relationship between Fiscal policy and net exports
I am confused about the relationship between fiscal policy and net exports.
Suppose government goes for expansionary fiscal policy
Case 1 - If public expenditure rises, income rise, rise in ...
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1answer
36 views
Does higher tax on luxury goods does more harm than benefit?
I was studying Fiscal policy and I came across measures to reduce income inequality by using fiscal tools. One of the tool mentioned in that was - Higher taxes on luxury goods
This makes sense that ...
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31 views
Why is Crowding out more effective at full employment?
Now my professor explained to me that at full employment the increase in G (gov expenditure) shifts the IS curve to the right, but at the same time the price level increase from the rightward shift in ...
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which policy (fiscal or monetary) is better to stabilize the cycle?
I am currently studying for a test and the following sentence "In an open economy with high capital mobility, monetary policy is preferable to fiscal policy to stabilize the cycle", the "answer" is ...
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Diligent, wise bona fide voters
Can a diligent, wise and bona fide voter choose procyclical policies?
I am asking if there is any explanation.
In diligent and wise I mean people who appreciate the Ponzi scheme, want to balance ...
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What is the optimal fiscal transfer rate between regions in a currency union?
I'm aware of the theory of optimal currency areas, and that both the Euro and the US dollar* are technically not optimal. This would tend to cause their optimal monetary policy to diverge over time.
...
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1answer
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How does a govt surplus increases investment?
From the closed economy equilibrium condition $I = S + (T - G)$, how does exactly a surplus (which I assume would be used for paying debt) increases investment in the same amount? I ask that because ...
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Different explanation for economic growth, depending on the length of the period considered
I'm being introduced to macroeconomics, and a colleague asked why do we say that in the short term the productivity of a country is determined by the "demand side" (IS/LM model) while in the long run ...
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Active Passive Monetary and Fiscal Policy
I'm trying to understand a little better the operational differences between active and passive monetary-fiscal policy.
For instance, is it that one should see different Taylor Rule feedback ...
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Fiscal sustainability: Debt dynamics
The change in debt ratio can be written as the equation
Where G-T is the primary budget deficit.
r is a constant interest rate.
g is the growth rate.
The equation for debt ratio can be drawn in a △d/...
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1answer
42 views
Government deficit
When the economy of a government is facing a deficit, why can't the government just increase the taxes to pay for its expenses? I've read that it should rather borrow money, because increasing the ...
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Do changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption
True or False: Changes in fixed taxes have a bigger effect on real GDP compared with government spending because they affect consumption
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Could the inflation following the Gold Rush have been avoided, are we any “wiser” on inflation now?
Quoting Milton Friedman on the inflationary period shortly following the American Gold Rush in California:
"Because there was more gold, they had to pay a little more gold to
buy goods and ...
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2answers
367 views
What is the effect of expansionary fiscal policy in case liquidity trap situation?
I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is ...
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1answer
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Fiscal budget: spending in real vs nominal terms
What does it mean in the context of a budget to “freeze spending in real terms”? And how would this differ from freezing spending in “nominal terms”?
I am looking to understand how this would be ...
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1answer
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Advice for finding literature for thesis
I have to write my bachelor thesis in the coming months and I was planning on replicating one of the leading papers of the last years in the field of macro economics. Problem is that I am ...
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Universal Basic Income [closed]
In 2017 some countries have adopted the Universal Basic Income as an alternative to Welfare Payments, my question is, is it economically feasible by governments?
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Debt accumulation equation derivation: valid given that it rests on calculus and the time period is a year? (nowhere near infinitesimal?)
Above is an image of what I’m referring to. The top ‘rule of thumb’ is derived using calculus, and hence is only valid for infinitesimal changes in t. However, this equation is considered over the ...
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1answer
301 views
How is reducing government expenditure supposed to reduce aggregate demand?
In my coursebook it says that in a deflationary fiscal policy governments may reduce government expenditure (such as building hospitals and road constructions) to reduce aggregate demand but I don't ...
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1answer
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Does the separation of FinCEN, and The Federal Reserve protect the integrity of a representative democracy? [closed]
From my understanding, FinCEN is controlled or heavily influenced by the UN. In addition, The Federal Reserve is not a governmental body, yet it has appointees from the current administration.
I'm ...
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How does Limited Friction affect a two-period model? Does the Ricardian Equivalence hold?
Consider a two period model with limited commitment involved.
Each consumer
has a component of wealth which has value $pH$ in the future period, cannot be sold in the
current period, and can be ...
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2answers
2k views
What is fiscal impulse?
I came across this term in the following paragraph and I could not comprehend what it meant.
The new WPI series does not include any indirect taxes, which brings it conceptually closer to the ...
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1answer
740 views
Why is there a structural deficit/surplus?
I'm going through Fiscal Policy and I'm reading about Structural Budget and Cyclical Budget. To my understanding, Cyclical Budget is what occurs when automatic fiscal policy is in use. So G and T are ...
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Is there a term for economic policy design built from minimizing per-household adverse impact?
May be easiest to start with an example: let's say I'm looking to eliminate the mortgage interest deduction, but want to minimize the impact on households from doing so. I also want the change to be ...
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Why can't direct taxes be passed on to the consumer? [duplicate]
What stops firms increasing prices of goods in the case of an increase of a direct tax such as corporation tax?
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3answers
164 views
Since it doesn't change the money supply, how can an “expansionary” fiscal policy alone spur economic growth?
I understand how monetary policy can be used to heat up an economy by increasing the money supply, but how can a fiscal policy do so? When the government borrows money to increase spending, it is not ...
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1answer
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Economic effects of a Commons Capital Depository
Yanis Varoufakis (Ιωάννης Βαρουφάκης) proposes to fund a universal basic income (UBI) using dividends from a commons capital depository, essentially channeling a percentage of shares issued at an ...
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How can governments seemingly run permanent budget deficits?
How can countries afford to run budget deficits for decades on end and not become overburdened by interest payments on those debts?
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1answer
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Is there a good mechanism to incentivize leveraged firms to take less risks?
It seems that there are some circumstances, say when the government foresees a financial crisis, where it would like firms to hedge, take less riesk etc. However, leveraged agents benefit from risk, ...
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1answer
214 views
How does an elastic Money Demand affects the effectiveness of fiscal policy?
From my notes:
'The elasticity of Money Demand reduces the impact on the interest rate of the increase in government spending...'
My question is: if the Money Supply is inelastic, the elasticity of ...
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2answers
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Macroeconomics: Aggregate Demand, Equilibrium Dynamics and Expenditure Multipliers
I am having a hard time with the following economic questions (See attached). Here is my approach:
Note about the curves: The graph below depicts an economy where a decline in aggregate demand has ...
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1answer
5k views
How government borrowing from central bank increases money supply in economy?
Yes, public finance by government may lead to increase in money supply in economy. But, if govt borrows money from central bank, less amount of money is left with central bank to lend it to banks and ...
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1answer
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Are there economic policies that help countries fight corruption?
Are there particular taxes or subsidies or public goods that a country's economic authority could implement to help in the fight against corruption? While the rule of law seems to be the first order ...
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1answer
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What do economist state as evidence that “structural reform” works?
The typical recipe for countries to improve their growth rate and escape high indebtedness is to reduce expenditure and implement structural reform. What do people use as evidence of structural reform ...
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44 views
Why is fiscal deficit always shown as a percentage of GDP?
If the probable reason is because it must reflect the government's ability to pay back the deficit, wouldn't government income be a better indicator, rather than GDP?
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Negative interest rates - Fiscal Policy (Demand-side)
(This is part two of a series of questions I've posted here under "Negative interest rates")
Motivation:
I've happen to stumble on two articles, with some weeks, that the central bank(CB) of ...
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1answer
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Why doesn't the ECB implement the same fiscal and monetary policy that the FED used to save the US economy?
If the Fed managed to save the US economy with their liberal expansionary policy, why doesn't the ECB follow suit if it is much more efficient in reducing unemployment etc?
Also, why did ...
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3answers
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What kind of policy is minimum wage?
Does it fall under fiscal, monetary, or supply-side, or perhaps some other group? Also (seeing as minimum wage is a form of price control policy), where does the broader "price control policy" fall?
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Have all the PIIGS tried stimulus?
Greece: signs of growth come as austerity eases
Last month the Greek parliament approved a stimulus programme
involving highway construction that is quite large. According to the
ministry of ...
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1answer
421 views
Flat AD curve - policy effects
Suppose the AD curve is relatively flat because the Fed wants a stable price level.
Which policy (monetary or fiscal) is ineffective?
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1answer
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Could food storage prevent a depression?
In Genesis chapter 41 Joseph interpreted the dreams of Pharaoh about 7 years of plenty and 7 years of famine which resulted in saving Egypt from famine, among other things.
I think this is a great ...
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2answers
435 views
Macroeconomics - Fiscal/Monetary Policy and the Price level
I was studying for my macroeconomics test by solving test banks and I came upon this question which has been really bugging me.
To decrease the price level
A.the Fed could buy bonds and the ...
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1answer
451 views
How much influence does the president really have on US economy?
We hear a lot about how the economy changed under a certain president, but how much does the incumbent actually affect the economy? Are the fluctuations we see in economic growth due to natural market ...
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1answer
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How could monetary policy be affected if cash “gifts” to consumers were more frequently used?
A few years ago in the US, everyone who filed taxes received a check for $1000.
If this method of inflation was logistically more feasible, how could this be used in monetary policy, and what ...
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3answers
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Why are nations engaging in austerity when bond yields are historically low?
In the UK and EU austerity programmes are rife. However, bond yields are also historically low, and have even been negative! At a time when debt is cheaper than ever, and below the accepted long term ...
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What's quantitative easing?
From what I understand after reading mainstream media, quantitative easing increases the supply of money in the economy without direct government spending (fiscal policy).
It seems to have all the ...
