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  • Evaluation of Fiscal Policy:
    • Disincentive to work: Increasing tax made reduce AD.
      • Fall in productivity and AS
        • Evaluation: depends on the state of economy e.g. automatic stabilisers
    • Spending on public services will decline
      • Less money spent on public services
        • SOL decrease
    • Less money spent on welfare benefits
      • Increase in absolute poverty
    • Reduced public services:
      • Reduction in S.O.L.
      • Less spending on unemployment benefits and increase absolute poverty
    • Poor information:
      • Gov needs to predict inflation (anticipated inflation) and growth is not easy. GOvernment needs to know how to increase/decrease AD
    • Time Lags
      • Increasing AD/spending may take took long to have a desired effect
    • Increase in budget deficit:
      • Government spending may increase budget deficit
        • Increased borrowing
        • Crowding out
          • Crowding out depends on spare capacity. Large spare capacity, no C.O.
        • Higher debt interest payments
    • Depends on AD components:

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