Impact of Fiscal Policy on Economic Growth and Investment

This assignment delves into the analysis of fiscal policy, exploring its effects on economic growth and investment. The provided content highlights key aspects of fiscal policy, including expansionary and contractionary approaches, government spending, and the impact on unemployment rates. T...Read More

Running head: Unit Activity: Government
UNIT ACTIVITY: GOVERNMENT
Name of Student
Course name:
Course ID:

1
Unit Activity: Government
Speaker 1: I believe that through the implementation of fiscal policy the government will
identify the opportunity of growth that will definitely increase investment.
Speaker 2: Implementation of fiscal policy will consist of time lags that will be mainly
incorporated within the policy as it takes long time to be implemented in real economic scenario.
Speaker 1: It may take time to implement fiscal policy but fiscal policy helps in the expansion
of economy by inviting investment within the economy.
Speaker 2: Yes, it is true but I would like to draw attention of the operational lag that is mainly
associated with the expansionary fiscal policy.
Speaker 1: The expansionary fiscal policy irrespective of having operation lag will force the
Long Run Aggregate Supply curve to shift right and increase growth of GDP.
Speaker 2: It is very hard for the economists to forecast the efficiency of the fiscal policy for
any developing nations.
Speaker 1: Expansionary fiscal policy always helps in expanding the consumption by increasing
the disposable income through cutting tax.
Speaker 2: Predicting the correct size, nature and timing of application of fiscal policy is tough
for the whole economy.
Speaker 1: Fiscal policy is having the capability of increasing the investment by cutting business
tax.
Speaker 2: Unlike monetary policy, the fiscal policy is selective and it does not go with every
situation.
Speaker 1: It allows the government to increase their spending on final goods and services that
will help in investment.

2
Unit Activity: Government
Speaker 2: Now with expansionary fiscal policy if excess money is injected then it will be hard
to identify.
Speaker 1: Expansionary fiscal policy allows the economy to shift the equilibrium and minimize
unemployment.
Speaker 2: It has an adverse effect on income redistribution.
Speaker 1: U.S. government spending rose from 19.6% of GDP in 2007 to 24.6% in 2009, while
tax revenues declined from 18.5% of GDP in 2007 to 14.8% in 2009.
Speaker 2: Compensatory fiscal policy will force the private employees to discourage
investments, as they will get pressure from public.
Speaker 1: The Obama government passed $830 billion in government spending in 2009.
Speaker 2: If balance budget multiplier in fiscal policy is less than taxpayer then national
income will fall.
Speaker 1: Contractionary fiscal policy is implemented if the situation demands.