Y1 31

Question 1

Expansionary fiscal policy cons

Answer 1

Higher demand pull inflationary pressure
Worsening of government finances
Crowding out effects
X inefficiency
Time lags

Question 2

Expansionary fiscal policy cons
Government finances bad

Answer 2

Budget deficits could rise
The national debt would increase
These policies would have to be funded through cuts and other areas such as health education, et cetera
Could mean higher taxation
Government could rack up more debt, which is a big opportunity cost of paying debt interest
Unproductive government spending money that could’ve been used more productively in the economy

Question 3

Expansionary fiscal policy cons
Government finances bad

Answer 3

Budget deficits could rise
The national debt would increase
These policies would have to be funded through cuts and other areas such as health education, et cetera
Could mean higher taxation
Government could rack up more debt, which is a big opportunity cost of paying debt interest
Unproductive government spending money that could’ve been used more productively in the economy

Question 4

Expansionary fiscal policy cons
Crowding out effect

Answer 4

When government spending is heavily borrowing fuel
Debt field government spending could crowd out the private sector and reduce private sector investment
Increased demand for loanable funds in the market which pushes up equilibrium interest rates
More expensive for private businesses to borrow and therefore funds their investments
Less investments means private sector becomes crowded
Long-term rates

Question 5

Cons of expansionary physical policy
X in efficiency

Answer 5

Governments lack of profit motive
Means government spending could be wasteful for government infrastructure projects or government organisation costs conspinspired out of control

Question 6

Cons of expansionary fiscal policy
Time lags

Answer 6

Government spending on infrastructure projects means rounds of government spending
Not going to get the big boost of A.D. until the project is finished
Also tax cuts will take time to feed through the economy
Households will take time before the tax cuts will be spent and corporation tax is invested to increase their profit