Fiscal policy+Inflation (1 Viewer)

[laracroft]

i' just doing some stuff on fiscal policy and ive realised that i don't really know anything about how fiscal policy can influence inflation. i know the toles of monetary policy, microeconomic reforms and blah in influenceing inflation, but not fiscal policy....
please could anyone give me some starting hints

 

[Eagles]

expansionary stance = more investment = more demand = demand pull inflation

but this is the case only if productions does not meet the demand..

 

[matt_f64]

fiscal policy and inflation

the simplest way to look at it is the Government runs a budget surplus (ie. take in more tax revenue than what they spend into the economy) and this limits funds in the economy for consumers (ie. consumers have less money to spend on goods and services) so now that reduces Aggregate Demand which reduce demand pull inflation.

 

[matt_f64]

on the other hand u cud say a budget deficit reduces inflation because it means more money in the economy COULD mean more investment so productivity could be improved (meaning prices go down... = cost push inflation reduced) but that would be assuming the goverment is spending a lot on investment and research&development which isnt always the case). the most simple way of reducing inflation is by the above post i wrote (budget surplus). basically when mentioning fiscal policy as an inflation tool, say how it CAN reduce inflation in one of the above ways, but then state how in the last few decades since "keynsian economics" we have been using monetary policy (adjustment of interest rates) to overcome inflation and have not been using the budget as much for this.

 

[Teoh]

OR
You could argue fiscal policy has no real relation to easing cyclical issues, or acting as a counter-cyclical measure. Instead it is mainly concerned with socio political factors, and handing out money, in order to ensure an election win.

 

[i-color]

hahaha...yeah you should always be sayign that nowadays fiscal policy only acts as an adjunct to monetary policy and has no real effect on the eocnomy in the long run (other than increases prices etc.....but that's uni stuff ) it jsut shows you're analysing yoru policies and not just stating what thousands of others will be stating

 

[aditya]

i think with this u should also go and study the crowding out/in effects...