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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Some economists argue for the use of fiscal policy to solve economic problems; others argue against it. What are some of the arguments on both sides?

To determine

Identify the arguments for and against the use of fiscal policy to solve economic problems.

Explanation

The fiscal policy can influence the aggregate demand (AD) and thereby the real GDP in an economy. Some of the arguments for the fiscal policy are listed below:

  • Less self-regulating capacity: As per the changes in cyclical fluctuations, the economy is not always capable to self-adjust itself. There is a support or push needed from the side of government to regulate the economy.
  • Correcting externalities: Fiscal policies are used to correct the externalities in an economy.

These are some of the arguments raised by the supporters of fiscal policy, although the effectiveness of fiscal policy on aggregate demand is always a debatable topic...

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