Question

Explain the following statement: "Although fiscal policy clearly is useful in combating the extremes of severe recession and demand-pull inflation, it is impossible to use fiscal policy to fine-tune the economy to the full-employment, noninflationary level of real GDP and keep the economy there indefinitely."

Answer 1

Answer:

Fiscal Policy: Is very important and useful in tackling and contending economic slip into stark recession with its incorporated “safety nets” and equilibrium tools, and while the incorporated stabilizers can also reduce and curb high spending during inflationary periods by mopping up excess cash in circulation by way of reducing government expenditure and increasing tax. Nevertheless, it is certainly not possible to keep the economy at its full-employment, noninflationary level of real GDP indefinitely.  This is for a simple reason of timing factor as a problem.  Business cycle operates with time, and the impact of fiscal policy will affect the an economy business cycle inversely subject on the timing of the fiscal policy and the rigorousness of the economic situation.  Fiscal policy drives in an environment that is politically determined that would for political reasons disapprove of higher taxes and precise cutting of spending by government through the fiscal policy framework for appropriate economic policies implementation.  

On a final note, fiscal policy framework will not be very possible to do any acceptable alteration of the economy to a perfect level to start with. it is almost impossible to proposal a long term fiscal policy framework that would keep the economy stabilized for long, because of so the factors I already explained  (Political, instability, timing etc).