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October 07 , 2007

Impact of Fiscal Stimulus on Aggregate Demand


The rich countries are resorting to fiscal stimulus to increase aggregate demand to fight the current recession. Discuss the feasibility of lower middle or low income countries resorting to fiscal stimulus to stave off recessions in their own economies. You can use one or more countries as examples.
(Hint: Ask the following questions: How much should be additional spending and how much tax cuts?  From where can the government borrow money? How much? On what kind of projects should the money be spent? What will happen to employment, prices, trade balance, interest rates and money supply?)

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