Question

Why do some people question the effectiveness of expansionary fiscal policy? Are you in favor of such a policy? Why or why not?

Answer 1

Expansionary fiscal policy are designed to increase the aggregate demand in the economy by increasing the expenditure by the government and reducing the taxes in the market. depending on the status of the short run supply curve the fiscal policy tends to crowd out the private investment.

If the economy is out of recession and expanding it will lead to a lower crowd out but if the market is expanding at a fast rate it might even lead to a 100% crowding out. Making the whole policy completely ineffective. I do not believe in the use of the fiscal policy due to this crowding out and it will lead to an increase in the taxes later.