using your knowledge of the amount of time required for the many components of the federal government to agree upon and implement changes i.e( tax code, welfare system). Can you think any problem with using fiscal policy to stabilize the economy?
Answers
Answer:
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Explanation:
Anyone can easily picture an economy where instability, stagnation and runaway government deficits converge into a perfect storm. Yet the simple mirror image of stability, growth, and balanced budgets currently seems odd to many. And with monetary policy looking breathless, some even wonder whether sacrificing fiscal sanity for short-term growth might not be worth a try.
In any economic debate, looking at the data is always a good starting point. And the latest issue of the Fiscal Monitor does exactly that. Our study looks at the experience with fiscal stabilization during the past three decades in a broad sample of 85 advanced, emerging market, and developing economies. The message is loud and clear: governments can use fiscal policy to smooth fluctuations in economic activity, and this can lead to higher medium-term growth. This essentially means governments need to save in good times so that they can use the budget to stabilize output in bad times. In advanced economies, making fiscal policies more stabilizing could cut output volatility by about 15 percent, with a growth dividend of about 0.3 percentage point annually.
Of course, using the budget to stabilize output requires healthy public accounts that can take hard hits during severe storms. And when the sunshine returns, policymakers must be wise enough to repair public accounts in preparation for future storms. That’s how stability, growth, and sustainability go hand in hand.