Given all the complications that can result with fiscal policy, is fiscal policy still considered aneffective 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 onmonetary 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 economyin 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 shouldremain fairly neutral. In cases where recessions are deep and long-lasting or inflation threatens torapidly rise, major adjustments in ( fiscal, monetary ) policy may be helpful to stabilize theeconomy. Economists do warn that the long-term effects of short-term applications of fiscal policyshould be considered to ensure that there aren't adverse effects in terms of aggregate supply,inflation and growth.

Lets just first understand the concept of Sustainability Policy. The stabilization goal aims to…

Answered: Given all the complications that can…

Given all the complications that can result wwith fiscal policy, is fiscal policy still considered an effective policy tool for stabilizing business cvcle fluctuations?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

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.

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