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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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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46 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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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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40 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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Why is the appropriation for basic education in South Africa's MTBPS so low?

I wanted to find out how much South Africa currently spends on basic education (primary and secondary schools). The information is on www.treasury.gov.za . The last budget reports that the government ...
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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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349 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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184 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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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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269 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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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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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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685 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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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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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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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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211 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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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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4k 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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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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158 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 ...
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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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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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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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384 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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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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426 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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441 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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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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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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379 views

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 ...
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651 views

In Indonesia, reducing fuel subsidy strongly impacts the price of everyday goods. Why?

In Indonesia, petrol/gasoline price is regulated by the government and historically it is heavily subsidized. I know, economists typically consider fuel subsidy to be a bad policy, for many reasons, ...
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Supply-side economics: reduction in tax

In a nutshell Supply-side economists support reductions in tax, because government revenue can increase (according to the Laffer curve) and businesses and consumers will be incentivised to invest (...
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657 views

Australian Dollar Devaluation

I am a layman in economics. I am curious about the current devaluation of Australian Dollar in comparison with the US Dollar. Could someone please explain, in simplest words possible: What causes ...
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1k views

Expansionary fiscal policy in a low mobility economy

I am reading the CFA Level 2 Economics section and I came across this statement: In emerging markets, capital flows may be restricted. In that case, impact of trade balance on exchange rate (goods ...
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What impact did major fiscal policy actions taken during the Great Recession (2007-09) have on U.S. economic performance?

What impact did fiscal policy actions taken during the Great Recession (2007-09) have on U.S. economic performance? Bush passed the Economic Stimulus Act of 2008 and also the Emergency Economic ...