The Role of Fiscal Policy in the Economy

Click on the links below and Read the articles. You can also use pdf. files with the articles posted in Content - Week 6 - Articles for Discussion week 6 area.

• Fiscal Policy: Economic Effects

https://fas.org/sgp/crs/misc/R45723.pdf

• Fiscal Policy: Taking and Giving Away by Mark Horton and Asmaa El-Ganainy

https://www.imf.org/external/pubs/ft/fandd/basics/fiscpol.htm

In your initial response to the topic you have to answer all questions:

1. Discuss the effect of fiscal policy on interest rates and investment. Explain crowding out effect.
2. Discuss the effect of fiscal policy on inflation.
3. Discuss the effect of persistent fiscal stimulus on the economy in the long run.
4. Describe the mechanism how changes in fiscal policy affect output and prices in the economy.
5. Reflection - the students also should include a paragraph in the initial response in their own words, using macroeconomic terminology, reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace or in everyday life.

1.Fiscal policy describes changes to government spending and revenue behavior in an effort to influence the economy (Weinstock, 2021). In order for the government to partake in fiscal policy they need to increase its size of its deficit and borrow more money. Therefore, this affects interests and investment by interests' rates increasing and investments decreasing. Crowding out effect is when the government borrows money and everyone else within the economy competing with them it sends a spike in interest rates and a decrease in investments

2.The primary goal of fiscal policy is to maintain inflation stability. Therefore, an accurate fiscal policy will help in rising inflation rates.

3.Persistent fiscus stimulus can negatively affect the economy in the long way. There are three ways it negatively affects it. One, it can lead to an unsustainable dept. Second, it can limit the long-term growth of the economy by crowding out private investors. and third, while debt keeps rising from the public it'll end up moving into the government spending which could cause more debt in the economy.

4.The use of fiscal policy is to increase the aggregate demand, which ultimately increases the output while decreasing unemployment and a higher price level.

5. Reflection- Overall, I learned how fiscal policy is utilized within the economy. The use of fiscal policy is to help keep inflation at a moderate level rather than see increase. An effective fiscal policy comes an effective economy and a growing economy.

No need to answer #1-4 questions, just respond with value added comments based on peers' reflection!!