Answer to Question #53081 in Other Economics for candy
Krugman thinks that fiscal policy is a powerful tool that affects the economy. If government spends more, total spending in the economy goes up. That increases the sales of businesses, which respond by hiring more workers. The result: more income and more work. Less government spending has the opposite effect. Higher taxes leave people with less money to spend and that has a depressing effect on economic activity. Lower taxes do the opposite.
In a liquidity trap monetary policy becomes completely ineffective. The central bank can shower trillions of dollars on the economy and it won’t matter. People will simply put the money in their pockets and not spend it. By contrast, fiscal policy is hugely effective. In fact, government spending is helpful even if it is completely wasteful.
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