This week we learn about the economic role of fiscal policy – changes in government expenditures, taxes and transfer payment – to counter fluctuations resulting from business cycles (chapter 25).
To fully appreciate the role of fiscal policy we use the aggregate demand model (Keynesian) to conceptualize the difference between actual and potential output, planned expenditures (ex ante) and actual expenditures (ex post). The role of fiscal policy is important part of the national debate over the last decade and us still being debated today in our current election cycle. Discuss the nature of fiscal policy components in expansionary /contractionary phase of business cycles with particular reference to the nuances of the Keynesian economic model. Apply this learning to our current debate on infrastructure spending, military budget, taxes and entitlement programs and provide insights into the pros and cons of this debate. (A word of caution: Do not turn this discussion into a political messaging. Utilize the Keynesian economic model to frame your discussion.)