• October 2nd, 2017

ECO 372 Week 2 Discussion Question 4

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What is the difference between contractionary and expansionary fiscal policies? Which is more appropriate today? Explain your answer. How might contractionary and expansionary fiscal policies affect your organization?

In general, our chapter 10 reading material describes fiscal policy as “the deliberate change in either government spending or taxes to stimulate or slow down the economy” (Colander, 2010, pg 247 para 2). The goal of decision makers is to attempt to realign the aggregate demand by a shift in order to keep or maintain output at its potential—this is a very complicated process and is not easily achieved due to the many dynamics of potential output:

• Changes to government spending and taxes are slow legislative process.
• There is no proven method for measuring potential output.
• Falling asset prices undermine the stability of the financial system.

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