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The Limits of Fiscal Policy
| Content Provider | WatchKnowLearn |
|---|---|
| Description | The best case for fiscal policy happens during a recession caused by an aggregate demand shock. Even so, it’s hard to get it right because the U.S. economy is massive and complex. An ideal stimulus is: 1. Timely 2. Targeted 3. Temporary All of these characteristics present some problems for enacting fiscal policy. First up, we have timeliness. When a recession hits, there can be a lag in recognizing that it’s happening. Then, the timeline for approving new government expenditures can be quite long. But we’re not done. The new project has to be implemented and that presents its own set of hurdles. There’s also an effectiveness lag – wages are paid over time and have to ripple through the economy. This whole process can take years. There is another way to achieve a timely stimulus though. U.S. fiscal policy includes some automatic stabilizers that kick-in when the economy isn’t doing so well. These include policies like the progressive tax code and unemployment insurance. Most economists favor these automatic stabilizers because, not only are they timely, but they’re targeted. They reach the people that are hurting the most in a downturn. Targeting can present another big problem for successful fiscal policy. A lot of new government projects provide infrastructure jobs. The problem is that it’s not just construction workers that lose their jobs during a recession. When the targeting is off, a stimulus loses some of its effectiveness. Finally, magnitude matters. For the 2009 U.S. stimulus, targeting and timeliness mattered a little less because the Great Recession was so severe and long-lasting. The 2009 stimulus was the largest since WWII – $900 billion spread out over several years. Even that huge amount of money was a tiny percentage of U.S. GDP. |
| Language | English |
| Access Restriction | Open |
| Rights License | Educational Community License |
| Subject Keyword | k-12 homeschool Fiscal Policy homeschooling home school parents educational videos k12 preK-12 Social Sciences Economics and Business Economics Social Studies Economics Concepts Macroeconomics |
| Content Type | Video |
| Educational Role | Student Teacher |
| Educational Use | Self Learning Lecture |
| Time Required | PT7M6S |
| Education Level | Class XI Class IX Class XII Class X |
| Pedagogy | Lecture cum Demonstration |
| Resource Type | Video Lecture |
| Subject | Fiscal and Monetary Policy |
