Question

What are the issues faced by government policymakers in their attempts to maintain stable prices, full employment, and adequate economic growth over time. Please explain in more detail.

Answer 1

Answer - In order to maintain the stable growth rate , level of employment , price levels in the economy , the government has to formulate various fiscal policies. These could be expansionary or contractionary. The government faces some challenges in the formulation and implementation of these policies. There is a fear of inflation and decrease in value of money in economy if expansionary policy is taken up. There may be crowding out which may lead to ineffectiveness of policy. The higher spending will lead to building up of pressure of external debt. In case of contractionary policy , the economy may get down too slow , leading to extreme unemployment and poverty. The implementation and formulation lags have also to be considered.