The lower level of aggregate demand and higher unemployment will tend to pull down personal incomes and corporate profits, an effect that will reduce the amount of taxes owed automatically. If aggregate demand were to fall sharply so that a recession occurs, then the prescription would be for expansionary fiscal policy-some mix of tax cuts and spending increases. On the spending side, stronger aggregate demand typically means lower unemployment and fewer layoffs, and so there is less need for government spending on unemployment benefits, welfare, Medicaid, and other programs in the social safety net. Because taxes are based on personal income and corporate profits, a rise in aggregate demand automatically increases tax payments. On the tax side, a rise in aggregate demand means that workers and firms throughout the economy earn more. To some extent, both changes happen automatically.
The policy prescription in this setting would be a dose of contractionary fiscal policy, implemented through some combination of higher taxes and lower spending. This situation will increase inflationary pressure in the economy. Practical Problems with Discretionary Fiscal PolicyĬonsider first the situation where aggregate demand has risen sharply, causing the equilibrium to occur at a level of output above potential GDP.Using Fiscal Policy to Fight Recession, Unemployment, and Inflation.Introduction to Government Budgets and Fiscal Policy.The Use of Mathematics in Principles of Economics.Exchange Rates and International Capital Flows.The Aggregate Demand/Aggregate Supply Model.The International Trade and Capital Flows.
0 kommentar(er)
