Slide 2: Arguments in Favor of Fiscal Policy & Rationale Behind Fiscal Policy Effectiveness

Question 1

1. Demand management

Answer 1

Stiglitz emphasizes power of managing aggregate demand in the economy, particularly during economic downturns.

Stiglitz suggests that governments should adopt expansionary fiscal policies, such as increasing government spending or cutting taxes, to boost aggregate demand.

Putting money in the hands of consumers and businesses, which can lead to increased spending, production, and job creation.

Question 2

2. Structural Adjustments & Long-Term Productivity Enhancement

Answer 2

Importance of addressing structural issues in the economy for long-term sustainability.

Fiscal policy should not be limited to short term demand management, should include investments in areas like education, healthcare, infrastructure, and research and development to improve the economy’s productivity and competitiveness.

Question 3

3. Inequality, Inflation & Redistributive Fiscal Policies

Answer 3

Stiglitz is concerned about income and wealth inequality.

Excessive inequality can lead to social and economic instability.

Fiscal policy allows for progressive taxation, and targeted government programs can that help reduce income disparities.