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Hot answers tagged fiscal-policy

39

This is a good question. To be concrete, I think it's easier to pick a single number - this is arbitrary, but I'll go with the figure of $10,000 offered in the proposal by Charles Murray (one of the most prominent conservative supporters of a universal basic income). I'll assume that this is offered to every adult in the US age 18 and over, expanding ... 18 Most of the same considerations apply to countries as apply to businesses and people, plus a couple of extra cons Pros of Being Debt Free No interest payments Not beholden to someone else (financial freedom) Cons of Being Debt Free Buying things on (interest free) credit can save a little money Paying for things in installments can match costs to income ... 10 Before the edit, you wrote "qualitative easing", but I think you refer to quantitative easing. I'll discuss both. Quantitative Easing Quantitative easing corresponds to the central bank (CB) expanding its balance sheets by "buying" assets. This is typically done in secondary markets. It mainly injects liquidity into the system. To the ... 10 There is an interesting report that circulated during the Clinton administration, when we predicted we'd pay off all the debt, that I think answers your question. (here's a public radio article about it) The main takeaway is that government bonds are the safest and most liquid asset. Its existence is necessary for a large number of financial institutions (... 8 Source:- Bankers cost this country £456.3bn in fraud In the UK, where the government bailed out Royal Bank of Scotland Group Plc (RBS) and Lloyds Banking Group, the total outstanding support explicitly pledged to Britain’s banks stood at 456.3 billion pounds ($730 billion) at the end of March, or 31 percent of GDP, the National Audit Office said in a July ...

6

Suppose your country holds debt equal to thirty percent of GDP and that the government is obliged to pay interest of five percent per year on that debt. This implies that each year the cost of servicing the debt is 1.5% of GDP. Thus, if the country's GDP grows at a rate of 1.5% then it can afford to service the debt indefinitely without the debt/GDP ratio ...

6

This was due to the idea of liquidity trap, and due to Keynes thinking that in economic recession it is easy for an economy to slip into the liquidity trap. Liquidity trap is a situation where preference for holding cash becomes virtually infinite. Keynes (1936) in the 'General Theory' states: There is the possibility...that, after the rate of interest has ...

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An excellent overview of not just monetarist view on this issue but all other mainstream views on monetary policy at zero lower bound (ZLB) can be found in Ullersma (2002) The Zero Lower Bound on Nominal Interest Rates and Monetary Policy Effectiveness: a Survey - which is an excellent literature review on this subject (albeit slightly dated). In short, ...

5

If you think about it, there is really not much difference between a government budget constraint and a household budget constraint. Both have uncertain income streams, which are labor and capital income for the household, and mostly tax revenue for the government. On the other side of the constraint, you will find consumption and saving for the household. ...

5

Consumers rarely have to pay the full price of petrol / gasoline. That's true in most of the world, and the US is no exception. There are explicit subsidies and favourable tax regimes in many extraction countries; and of course there are the implicit subsidies in the unpriced pollution - oil's externalities. Those explicit and implicit subsidies have been ...

4

The ECB faces a unique challenge in that the Eurozone is a monetary union without a fiscal union. Because each country has autonomy over their own fiscal policy and there is no separate Eurobond, it is unclear which countries' bonds the ECB would buy to perform Quantitative Easing. In the US this is easy because of the presence of US Treasury Bonds that the ...

4

A new report by the Roosevelt Institute answers exactly that using a Keynesian, Stock-Flow-Consistent model calibrated to the US. According to their result, when distributional changes are considered, an UBI would considerably stimulate the economy. The Executive Summary reads: How would a massive federal spending program like a universal basic income (...

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A toy model is less useful here, as the only mathematical constraint is that both must adhere to the no-ponzi condition - i.e. that whilst you might be a borrower/saver in any individual period, you cannot finance your consumption merely by planning on borrowing more every year into the future. Yet aside from this constraint, various aspects of economic ...

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A rather positive view of structural reforms In their recent Economic Policy Reforms 2016, Going for Growth Interim Report, the OECD reviews the main growth challenges faced by OECD and selected non-OECD countries and takes stock of the progress made since 2015 in the adoption and implementation of structural policy reforms to address these challenges. ...

4

Kaushik Basu has proposed (Why, for a Class of Bribes, the Act of Giving a Bribe should be Treated as Legal) legalizing paying bribes to separate the ties of criminality between the bribe payer and receiver. This allows the bribe payer to pay the bribe and report the bribe taker. If bribe paying is illegal then the shared criminality prevents this. Dina ...

4

Firstly, a fiscal deficit is not very surprising. Governments normally want to keep its stock of liabilities (government-issued money and bonds) at least stable as a percentage of GDP. (This provides safe assets for the private sector.) Most economies normally have nominal GDP growing in steady state. The implication is that a steady state deficit is needed ...

3

Here is one paper that may be of interest: Analyses of the effects of election outcomes on the economy have been hampered by the problem that economic outcomes also influence elections. We sidestep these problems by analyzing movements in economic indicators caused by clearly exogenous changes in expectations about the likely winner during ...

3

Debt being cheaper than ever doesn't mean that it is optimal to borrow. Unless you plan to invest the borrowed money into projects that yield higher returns with certainty (we would call this arbitrage), any debt implies a tradeoff between the welfare of current versus future generations. Perhaps the borrowing before to higher rates was non-optimal under ...

3

This question is heavily reliant on the context of when it was asked. A lot has happened since February with respect to the Australian Dollar. A currency devaluation can be caused by quite a few factors. In the case of Australia, the devaluation is occurring with respect to the USD. The AUD remains strong but the US is currently experiencing a surge in ...

3

Imagine you are trying to fill a bucket with a hole in it. It's obvious you will never get the bucket filled if the hole allows more water to leave than you have power to put into it with a hose. That's your household budget. The hole = your expenditures. The hose = your income. The water level in the bucket = savings. Simple enough. National economies are ...

3

The two Banks of the United States (the First and Second) were nothing like the modern Federal Reserve system. For example, the First was prohibited from buying government bonds (one of the main roles of the Federal Reserve system is to buy and sell government bonds). Further, neither of the national banks had any role in regulating the banking system. ...

3

A vertical LM curve means that any change in government expenditure will result in a change of the interest rate which exactly offsets the initial change of public demand (private demand increases/decreases). A vertical AS curve indicates the level of long-run output. If AD shifts, all that this will create is a change in prices in the long-run. This is ...

2

In terms of actually getting it passed as legislation, the only evaluation that has any real significance is the one done by the CBO, as that's the official scorecard for Congress and debates that come up on the floor. I have no idea what the specific models they use are called, but I do know they are very linear and simplistic (by design) compared to other ...

2

First off, you are looking at the wrong column to compare like with like. Total debt went from \$16.7tr to \$17.8tr but that includes intragovernmental debt. Changes in this number will net out in the deficit calculation (this is one part of the government lending money to another part). Secondly, you are starting on the wrong date. You need to go full ...

2

I am quite surprised that none of the answers above have mentioned the classic Barro article "Are Government Bonds Net Wealth" The way I understand it is that given that the utility function is increasing and concave in consumption, increasing consumption increases utility but at a decreasing rate. Using the same logic, decreasing consumption decreases ...

2

"fraud" may have been a bit harsh, the original bloggers cite their figures: Hi Andrew, For all our articles we use information from national news organisations (for our sins). Have a look here at the Guardian http://gu.com/p/3xzdk, the BBC http://www.bbc.co.uk/news/uk-24104743 and the CAS http://www.cas.org.uk/node/3330

2

QE is designed to increase the money supply, usually in economic environment in which the money supply would otherwise be falling. The process by which this happens is not easy to understand unless you already have a very good grasp of fractional reserve banking, and it certainly isn't as simple as "printing money". In the first instance QE increases base ...

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In short: yes, it very well might be and this has been argued by some (see, for example: http://www.forbes.com/sites/jeffreydorfman/2014/07/12/forget-debt-as-a-percent-of-gdp-its-really-much-worse/#29b8530f6e0c). The use of Debt/GDP is the current international norm, but Debt/Tax revenue might very well be a better, more concise option. Using Debt/GDP might ...

2

Central banks can create money 'out of nothing'. So for starters there isn't 'less amount' of money left with the central bank. The amount of money at the central bank is 'infinite'. So it's not because the CB lends X amount of money to the government, that the CB has X amount less money to lend to the banks, the supply of money is not constrained... Off ...

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