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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questions
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1answer
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Large National Debt by borrowing money from foreign sources
I have a question about the greater severity of large national debt caused by borrowing from foreign sources.
I am reading a book about elementary Economics and am currently on a chapter discussing ...
2
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1answer
29 views
The link between economic growth, inflation, interest rates and fiscal deficit
I want to ask a question about how economic growth, inflation, interest rates is linked to fiscal deficit.
I was reading a book on introductory economics and the following passage came up:
If a ...
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0answers
32 views
Controversy surrounding the Fiscal Theory of the Price Level (FTPL)
I recently started reading a draft of John Cochrane's book on the Fiscal Theory of the Price Level. In the preface he states that the "[...] theoretical controversies are over." However, ...
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16 views
When the LM schedule is vertical, a change in fiscal policy (government spending) only increases the interest rate. What’s the intuition behind this?
As the government spending increases, the aggregate expenditure increases. This results in the increase in income.
Now in the money market as the income increases, transaction demand for money ...
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0answers
32 views
How was sulphuric acid used to back money?
I remember reading in a economics and history book that sulphuric acid production was used as an alternative to gold standard as the basis of the value of currency due to it’s importance in making ...
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0answers
11 views
Determining the effect of fiscal policy on foreign exchange market
I'm in AP (high school) Macroeconomics and I confirm if my thinking is right. Suppose the US and Taiwan are trading, and the US government decides to decrease taxes. I think this should have two ...
2
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0answers
35 views
non strategic sovereign default
Much of the sovereign default literature (e.g., Arellano (2008), Bulow and Rogoff (1989)), considers that sovereign default is strategic: i.e., defaults occurs if the current benefits outweigh ...
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0answers
26 views
Solving complex RBC/DSGE models
Why is it important for policymakers (central bankers, the treasury department, the finance ministry etc.) to be able to solve complex dsge/rbc models as quickly and as efficiently as possible?
I am a ...
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0answers
38 views
Loosely speaking, are all modern economies 'Keynesian' in their stance on spending during downturns?
Keynesian economics is defined as:
increased government expenditures and lower taxes to stimulate demand and pull the global economy out of the depression.
Do all modern economies adopt a Keynesian ...
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0answers
8 views
Does the US Federal Government keep public records of annual service payments on external (foreign-owned) public debt?
I'm doing some research on international debt policy, and I'd like to be able to compare some statistics I've compiled of external public debt in HIPC (heavily indebted and poor countries) with the ...
2
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2answers
70 views
What would monetarists do when interest rates approach zero and become ineffective?
So monetarist economists such as Milton Friedman focus on managing the money supply and lower interest rates as a solution to economic downturn. But what would they do in a recession as the interest ...
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1answer
38 views
Where to find information to establish causation between economic policies and economic data?
I've merely taken a few economic courses in college -not an economics major-, so my knowledge regarding the field is limited. Lately I've been interested in learning about the economic impact of ...
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1answer
125 views
Why did John Keynes believe that monetary policy to be less effective than fiscal policy?
So why did John Keynes believe that monetary policy to be less effective than fiscal policy for stabilising the level of economic activity, particularly in a recession?
Lowering markets' interest rate ...
2
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1answer
61 views
Monetary policy rate and fiscal deficit
A colleague in work mentioned today that Chile is keeping a flat monetary policy rate given "there is a higher expected fiscal deficit".
If there is an expected fiscal deficit (i.e., ...
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1answer
50 views
Can someone please explain how personal savings and fiscal deficit are related in this context? [closed]
The lines which i have highlighted is what I want to be explained to me. This is with reference to indian economy
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2answers
76 views
Macroeconomics differences of 2008 financial crisis and 2020 economic crisis
How is 2020 financial crisis different from 2008 financial crisis? For example, why have stock market indices (e.g. S&P500, NASDAQ-100) recovered so quickly (about 3 months instead of longer than ...
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0answers
47 views
How to calculate fiscal space for a country?
I would greatly appreciate if you could explain me how to calculate fiscal space for an specific country. Or, could you please introduce me some references which explain it's calculation step by step ...
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1answer
67 views
The government does not need to gather capital via tax and Treasuries to spend? According to MMT
I have watched Warren Moslers interview. https://www.youtube.com/watch?v=W97s3zbFKvc&t=841s. At 7:26 he says that the Treasury does not issue securities for the purpose of financing spending (it ...
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0answers
17 views
What would happen in the IS-LM model if there is a simultaneous decrease in tax and interest rate?
Since there is a fiscal expansion with a decrease in tax i'm not sure what the interaction would be with a decrease in interest too, would money supply and output both increase?
Thanks
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1answer
51 views
How can autonomous private spending change budget surplus?
I was reading Keynesian economics in R.Dornbusch's book where he mentioned the defects of using budget surplus as a measure where he says it can be changed and effected by autonomous private spending ...
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2answers
75 views
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. ...
0
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1answer
37 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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1answer
114 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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0answers
33 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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0answers
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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 ...
2
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1answer
54 views
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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1answer
46 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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0answers
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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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73 views
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 ...
2
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2answers
532 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
293 views
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
60 views
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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2answers
85 views
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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1answer
371 views
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
623 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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0answers
162 views
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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vote
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
921 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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0answers
14 views
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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2answers
165 views
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
171 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 ...
4
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1answer
83 views
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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2answers
109 views
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
20 views
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, ...
0
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1answer
239 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 ...
3
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2answers
5k views
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
7k 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 ...
4
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1answer
109 views
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 ...
3
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1answer
159 views
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 ...