econ-journal22

econ-journal22 - economy it will increase investment which...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Duc Hoang Journal - Fiscal policy – 11/4 Although a fiscal policy does achieve in helping the economy for a short period of time by affecting the elements of aggregate demand namely investment and consumption it does have several problems that hold back its effectiveness. On the one hand by decreasing taxation and increasing government spending, the fiscal policy will probably achieve in increasing aggregate demand. This will happen since the decrease in taxation will increase people’s disposable depending on the marginal propensity to consume the domestic consumption of an economy which in turn will increase aggregate demand. Similarly the government by increasing spending in all sectors of its
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: economy it will increase investment which in turn may lead to an increase in aggregate demand. This is an effective way to combat economic problems such as unemployment and recession. On the other hand if a government wants to eliminate recession it will have to pursue a contractionary demand side policy. This policy will increase taxation thus decreasing the citizens disposable income thus in turn reducing consumption which will reduce aggregate demand which will in turn reduce inflation. On the other hand it will decrease government spending thus decreasing investment which will again reduce aggregate demand and thus in turn reduce inflation....
View Full Document

This note was uploaded on 03/10/2011 for the course ECON 101 taught by Professor Duc during the Spring '05 term at Linfield.

Ask a homework question - tutors are online