expansionary fiscal oplicy

Topics: Public finance, Economics, Macroeconomics Pages: 3 (494 words) Published: March 18, 2015
Expansionary fiscal policy is a form of fiscal policy in which a decrease in taxes, and/or an increase in transfer payments are used to correct the problems of a business-cycle contraction. The goal of expansionary fiscal policy is to close a recessionary gap, stimulate the economy, and decrease the unemployment rate. I will now evaluate the view that expansionary Fiscal Policy is always beneficial to the UK’s macro-economic performance. One way expansionary fiscal policy can be beneficial to the UK’s macro-economic performance is that it can lower taxes, this is beneficial as if you lower taxes, income of consumers would increase which would increase consumer spending. This would create more economic growth as there would be an increase in goods and services. However b`y decreasing taxes, the government budget deficit would increase as the government’s spending would exceed government revenue. Lowering taxes would shift AD right on an AD-AS curve as there would be an increase in consumer.

Another way expansionary Fiscal policy is always beneficial to the UK’s macro-economic performance is that it increases government spending on infrastructure. An increase on government infrastructure could lower unemployment in short run, for example building a road would lead to more builders being employed as they are needed, this would increase aggregate demand. However this employment is only seasonal as when the road is done, these builders will be unemployed again. This means that Expansionary fiscal policy is only beneficial to the UK’s unemployment in the short run.

A third way that expansionary Fiscal Policy is always beneficial to the UK’s macro-economic performance is because it increases borrowing. In the short run, the government will provide more subsides as it has more money to give to firms, this will then lead to an increase in goods and services in the economy as the firms variable costs of production will decrease which will lead to them...
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