Advantages Of Fiscal Policy

Fiscal Policy and How It Affects the Economy Fiscal Policy consists of changes in government expenditures and/or taxes to achieve economic goals, such as low unemployment, price stability, and economic growth. There are two types of policies used by the government. These policies include expansionary and contractionary. There also the Keynesian economists as well the Classical economists. Each of these economists have different views on the fiscal policy. Some see the fiscal policy as ineffective and others effective. The government uses fiscal policies for various reasons. There are many scenarios in which countries such as Japan and even the US has use this policy. It may be used for unemployment rates or even to help a country that

Crowding out is one disadvantage that has to be taken into consideration. The increased demand from the government for borrowed funds can potentially raise interest rates and crowd out others who do not wish to pay the higher rates. This can further affect unemployment rates and benefits. Furthermore, since governments use Expansionary fiscal policy, there is a prominent increase in government spending and budget deficit. According to Weil (2008), “Fiscal policy also changes the burden of future taxes, thus imposing of future taxpayers.” As a result, the government would have to decide whether to raise taxes or not in order to indemnify for their spending. Another disadvantage that is prone to occur is that fiscal policies may not be implemented quickly. This may be due to Lag. Lag arises because there is a gap between the time a fiscal policy is needed and the time the president and Congress implements it (Weil, 2008). The Government has to decide on the passage of the bill and by the time the bill is passed the issue would have already been resolved. Lags may also be influenced by forecasting. If economic activities are not observed accurately, predictions will not be accurate enough for decisions to be made and