Weil's Explanation of Fiscal Policy
Weil (2008) attempts to use this article to explain the concept of fiscal policy. This policy involves the understanding of how the government spends collected funds. Fiscal policy is also used by the government to regulate other macroeconomic variables such as aggregate demand, exchange rates and trade balances. It is important to comprehend how this concept operates for people to understand their role in the payment of taxes. Therefore, every person should understand the operation of fiscal policy to learn how their resources are utilized and managed through budgetary systems and other fiscal tools.
The Impact of Government Actions on the Economy
In his article, Weil attempts to explain how government actions affect the economy by impacting people’s behavior through spending. The study states that actions such changes in government budgetary systems affects the amount of disposable income held by people. Fiscal policy is also used to regulate the amount of money supply through contractionary and expansionary policies. These are process applied by the government to either increase or reduce the amount of money in circulation. Furthermore, the article explains how fiscal policy is used to regulate aggregate demand and supply of products. When the government wishes to encourage people to consume a product, they reduce the amount of taxation on that product. Lastly, the article explains the impact of fiscal policy on exchange rates and trade balances.
Mankiw's Principles of Economics and Fiscal Policy
Mankiw’s principles of economics are major foundations of the information presented in this discussion. Most of his principles form the baseline for the article’s discussion. For instance, it is evident that people face trade-offs while paying taxes. They choose to deplete their finances to achieve their fiscal duty. They use their income to pay taxes to facilitate various government objectives. Second, people respond to better fiscal policies applied by the government as incentives. Moreover, the government uses fiscal policies to control the problem of printing too much money. The use of contractionary policies controls this problem.
Fiscal Policy in the Context of Liquidity Trap
Mertens & Ravn (2014) attempt to explain the impact of fiscal policy on liquidity trap. Fiscal policy is used in place of monetary policy when is rendered ineffective. This exchange takes place when people insist on saving despite the existence of low-interest rates. In this instance, fiscal policy is preferred since public’s high confidence motivates liquidity trap.
Implications of Debt Finance in Fiscal Policy
On the other hand, Stokey (2017) tries to explain implications of debt finance in fiscal policy. He explains that debt finance is the use of loans to facilitate government operations. Stokey considers this practice as a factor that limits the achievement of the state’s full potential. The article also explains that debt finance involves the transfer of debts whereby the future generation is forced to pay despite them not benefiting from the loans. In other words, they are forced to spend their resources in repaying loans that were consumed by other people.
Conclusion: The Importance of Understanding Fiscal Policy
In conclusion, it is evident that fiscal policy is an issue that affects all people irrespective of their economic and social standards. The policy is used to impact different macroeconomic variables which in turn affects a group of people or the whole country. Fiscal policy is also used by the government to regulate behavior through encouraging or discouraging consumption of different products. Therefore, it is necessary for every person to understand this concept to comprehend different decisions made by the government regarding taxation.
References
Mertens, K. R., " Ravn, M. O. (2014). Fiscal policy in an expectations-driven liquidity trap. The Review of Economic Studies, 81(4), 1637-1667.
Stokey, N. L. (2017). Aggregative Fiscal Policy. Journal of Political Economy, 125(6), 1756-1761.
Weil, D. (2008). Fiscal Policy: The Concise Encyclopedia of Economics | Library of Economics and Liberty. Econlib.org. Retrieved 3 March 2018, from http://www.econlib.org/library/Enc/FiscalPolicy.html
