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Temporary and Permanent Fiscal Policy

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

What is Temporary and Permanent Fiscal Policy? A temporary tax cut or spending increase will explicitly last only for a year or two, and then revert to its original level. A permanent tax cut or spending increase is expected to stay in place for the foreseeable...

Fiscal Policy Limitations

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

What are the Limitations of Fiscal Policy? Fiscal policy can help an economy that is producing below its potential GDP to expand aggregate demand so that it produces closer to potential GDP, thus lowering unemployment. However, fiscal policy cannot help an economy...

Politics Affect Discretionary Fiscal Policy

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

How Do Politics Affects Discretionary Fiscal Policy? A final problem for discretionary fiscal policy arises out of the difficulties of explaining to politicians how countercyclical fiscal policy that runs against the tide of the business cycle should work. Some...

Fiscal Policy and Trade Balances

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

How does Fiscal Policy Affects Trade Balances? Government budget balances can affect the trade balance. A net inflow of foreign financial investment always accompanies a trade deficit, while a net outflow of financial investment always accompanies a trade surplus. One...

Exchange Rates Affect Budget & Trade Deficits

by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy

How do Exchange Rates Affect Budget and Trade Deficits? Exchange rates can also help to explain why budget deficits are linked to trade deficits. International financial investors, as a group, will demand more U.S. dollars on foreign exchange markets to purchase the...
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