Fiscal Policy

• Evaluations of Loose Fiscal Policy


  • Governments may want to reduce national debt so cannot afford tax cuts
  • Firms may not reinvest as other factors impact investment decisions i.e. confidence
  • Consumers may have a high MPS
  • Less revenue for public expenditure which may negatively impact AD
• Evaluations of Tight Fiscal Policy

  • More profits to reinvest thus increasing output, quality and innovation
  • Higher disposable income increases consumption
  • More injections and fewer withdrawals due to expenditure-reducing policy
  • Less incentive to evade/ avoid tax
  • Increase in the size of the multiplier