Slow down the pace of an economic recovery. c Because automatic stabilizers lower transfer payments and raise tax receipts as an economy recovers from a recession, they: Most spending is geared to perform as an automatic stabilizer, so that Congress is in fact largely irrelevant when it comes to providing a fiscal response to a recession.
The amount of spending is unlikely to be implemented as economists suggest. Because of this:įiscal policy is always undertaken only when there is a national crisis that motivates voters to seek change.įiscal policy that involves raising taxes is more likely to be implemented than fiscal policy that involves borrowing money. b Most of the government budget is mandatory spending through programs like Medicare and Social Security, and much of the rest is politically difficult to alter. There is a policy that will allow policymakers to achieve either objective.Īggregate demand policy will allow policymakers to achieve one of these objectives, but not both.Īggregate demand policy will allow policymakers to achieve both objectives, but only if it is expansionary.Īggregate demand policy will allow policymakers to achieve both objectives, but only if it is contractionary. d Because reducing both unemployment and inflation simultaneously are conflicting goals: d Fiscal policy is typically:Įxtremely flexible because most government spending is discretionary.Įxtremely flexible provided policy lags are short.įlexible despite the presence of implementation problems.ĭifficult to implement quickly. Increase business investment by reducing interest rates. Increase business investment by increasing interest rates. Reduce business investment by reducing interest rates.
Reduce business investment by increasing interest rates. Contractionary fiscal policy that reduces the budget deficit may:
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