Given all the complications that can result wwith fiscal policy, is fiscal policy still considered an effective policy tool for stabilizing business cvcle fluctuations?
Given all the complications that can result wwith fiscal policy, is fiscal policy still considered an effective policy tool for stabilizing business cvcle fluctuations?
Chapter24: Fiscal Policy
Section: Chapter Questions
Problem 5P
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Question
![Given all the complications that can result with fiscal policy, is fiscal policy still considered an
effective policy tool for stabilizing business cycle fluctuations?
- While some economists believe it is best not to engage in fiscal policy at all and instead focus on
monetary policy, most economists believe that fiscal policy has a place in stabilization policy.
Currently, most economists believe that ( fiscal, monetary ) policy is useful to 'push' the economy
in a certain direction, but not necessarily 'fine-tune it' to a particular outcome. They argue that if (
fiscal, monetary ) policy is keeping the economy relatively stable, ( fiscal, monetary ) policy should
remain fairly neutral. In cases where recessions are deep and long-lasting or inflation threatens to
rapidly rise, major adjustments in ( fiscal, monetary ) policy may be helpful to stabilize the
economy. Economists do warn that the long-term effects of short-term applications of fiscal policy
should be considered to ensure that there aren't adverse effects in terms of aggregate supply,
inflation and growth.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F77a04e17-60d4-47e8-bd34-73dc0ab50f3b%2F93825c8e-1b5f-4a5c-a7fa-5e832de894a9%2F0vbbep_processed.png&w=3840&q=75)
Transcribed Image Text:Given all the complications that can result with fiscal policy, is fiscal policy still considered an
effective policy tool for stabilizing business cycle fluctuations?
- While some economists believe it is best not to engage in fiscal policy at all and instead focus on
monetary policy, most economists believe that fiscal policy has a place in stabilization policy.
Currently, most economists believe that ( fiscal, monetary ) policy is useful to 'push' the economy
in a certain direction, but not necessarily 'fine-tune it' to a particular outcome. They argue that if (
fiscal, monetary ) policy is keeping the economy relatively stable, ( fiscal, monetary ) policy should
remain fairly neutral. In cases where recessions are deep and long-lasting or inflation threatens to
rapidly rise, major adjustments in ( fiscal, monetary ) policy may be helpful to stabilize the
economy. Economists do warn that the long-term effects of short-term applications of fiscal policy
should be considered to ensure that there aren't adverse effects in terms of aggregate supply,
inflation and growth.
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