b. Even though Trump did not go into extreme detail on his economic plans as president, he made it clear that he would be introducing new fiscal policies.
c. In particular, Trump plans on utilizing expansionary fiscal policy by cutting taxes and increasing government spending.
d. Irwin worries this policy will result in a larger budget deficit for the country.
e. This policy may bring about some needed inflation.
f. The main worry many economists seem to have about Trump’s policies is that the economic growth it …show more content…
The media prefers to use the word stimulus to describe fiscal policy.
b. In an effort to build consumer confidence.
c. There are two types of fiscal policy: expansionary and contractionary.
i. One type is expansionary fiscal policy.
1. It is utilized during a recession.
2. The government will increase spending a lower taxes in an effort to shift the aggregate demand curve to the right and bring the economy to equilibrium. ii. The second type is contractionary fiscal policy.
1. It is used during an expansion.
2. The government will decrease spending and increase taxes in an effort to shift the aggregate demand curve left and bring the economy back to equilibrium.
d. There are quite a few problems with fiscal policy, though.
e. Crowding out can result in a few different scenarios.
i. Indirect crowding out occurs because the government has lowered the price of bonds and as a result, nominal interest rates go up and therefore the investment sector decreases. ii. Direct crowding out occurs when a government decide it wants to provide a good or a service the population needs. The private firms and businesses are unable to keep up with the government and are forced to go out of business. This scenario also results in a decrease in the investment