Fiscal policy refers to the changes in government's choices regarding the overall level of government spending and taxes to affect the behavior of the economy. Fiscal policy can expand or contract aggregate demand. The government sometimes uses the fiscal policy instruments in an attempt to stabilize the economy. Under a recession, an expansionary fiscal policy is adopted, which involves lowering taxes and increasing government spending. In an overheated expansion with an inflationary pressure, a contractionary fiscal policy is utilized, which requires higher taxes and reduced spending. Economists and policymakers disagree about how active the government should be in these efforts.
Based on the above summary and the detailed descriptions of the issues in the textbook (chapter 30) discuss any of the following set of questions:
What are the expansionary and contractionary fiscal policies? What are their policy instruments? How are they used to deal with the inflationary gap and recessionary gap?
What is the relationship between budget deficits and national (public) debt? Why has the USA national debt been increasing for decades?
Should the tax laws be reformed to encourage saving? Do you think consumption tax is better than income tax?