Answer to Question #205171 in Macroeconomics for Harshal Bansode

Question

"The global crisis that had its roots in the 2007 meltdown in the U.S. mortgage market is a good case study in fiscal policy." This is partly because of the way government tax revenues and expenditures adjusted to make the recession less severe. Discuss.

Answer 1

Fiscal policy refers to how the government spends and collects money in order to influence the economy. However, if used during a solid economic expansion, expansionary fiscal policy can lead to higher interest rates, larger trade deficits, and faster inflation.