*Snaps*

Oct 18, 2007 16:00

Why would the government want to tighten fiscal policy? To reduce GDP? Why on earth would you want to reduce national output?! That's not even slowing growth - that's putting the economy into a recession. The economy would be shrinking. Unemployment would be soaringOkay... so with growth there's inflation so... shrinking the economy would get rid ( Read more... )

questions, insanity, economics, study

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Comments 5

manky_lank October 18 2007, 05:01:34 UTC
Economics: It makes you... go crazy.

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veraciousme October 19 2007, 01:25:48 UTC
Lol, it's just the exams I swear!

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choc_milk October 19 2007, 00:26:28 UTC
I should totally know this because we just finished the macroeconomics section of the course and I'm sure I remember fiscal policy coming up a couple of times. Or maybe a lot.

But ummmm, I thought that a contractionary policy meant that the OCR would be increased, so bank interest rates would increase, so inflation would decrease. Am I wrong?

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veraciousme October 19 2007, 01:33:41 UTC
Yeah, contractionary monetary policy increases the OCR (/decrease the money supply) and decreases inflation.

Fiscal policy is concerned with government spending and taxation. So contractionary fiscal policy would reduce aggregate demand (AD) and reduce inflation that way.

And I just answered the question, except the model I've gotta use (Investment-Savings Liquidity Model if you're interested - not in NCEA thank Gawd) says interest rates would decrease. Guess that's an after effect to the reduced inflation.

Blah. Long reply. Sorry.

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choc_milk October 19 2007, 03:15:12 UTC
(I'm so proud of myself for remembering something from economics. I attend like one class in four.)

The Investment-Savings Liquidity Model sounds lovely. I think I am maybe going to avoid taking economics papers at university.

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