Chapter 9

Chapter 9 - FiscalPolicy CHAPTEROVERVIEW

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Fiscal Policy CHAPTER OVERVIEW This chapter looks briefly at the legislative mandates given to government to pursue  stabilization of the economy; it then explores the tools of government stabilization policy  in terms of the aggregate demand-aggregate (AD-AS) model. Next, fiscal policy  measures that automatically adjust government expenditures and tax revenues when  the economy moves through the business cycle phases are examined. The recent use  and resurgence of fiscal policy as a tool are discussed, as are problems, criticism, and  complications of fiscal policy. Finally, the workings of fiscal policy in an open economy  are addressed. COMMENTS 1. Fiscal policy, especially tax policy, is one of the subjects I think many of you find very  interesting. The chapter provides an excellent opportunity to establish the ties between  theory and real-world applications. 2. When we look at problems of using discretionary fiscal policy, we are generally faced  with timing problems. Recognizing, implementing, and seeing the results affecting  output. There can also be issues of administrative and political problems with  discretionary fiscal policy. The 2001 tax cut proposal illustrated many of these issues.
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Chapter 9 - FiscalPolicy CHAPTEROVERVIEW

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