Yes, it can, but this leads to another problem: inflation. 3.7 - Problems with Fiscal Policy. AP Micro Unit 3 - Costs of Production and Perfect Competition. A final problem for discretionary fiscal policy arises out of the difficulties of explaining to politicians how countercyclical fiscal policy that runs against the tide of the business cycle should work. However higher taxes do not necessarily reduce incentives to work if the income effect dominates the substitution effect. The real business cycle argues that macroeconomic fluctuations are due to changes in technological progress and supply-side shocks. Expansionary fiscal policy may result in the crowding out of private investment and net exports, reducing the impact of the policy. Governments employ fiscal policy to lower unemployment, limit inflation, reduce the impact of business cycles, and facilitate economic growth.Such goals are accomplished via government expenditure, business grants or loans, and revenue collection through taxation. Because empirical studies have been inconclusive, the extent of crowding out (and its … In view of such a situation, let us understand fully problems and limitations which are associated with a fiscal policy. When the Economy Fails Fiscal PolicyFiscal Policy Page 3 of 4 The Federal Budget . Government leaders get re-elected for reducing taxes or increasing spending. Fiscal policy lags are the result of delays in recognizing problems with the economy and applying solutions. Too much stimulus leads to inflation. These policies have limited effects; however, fiscal policy seems to have a greater effect over the long-run period, while monetary policy tends to have a short-run success. It is a term used to talk about the taxing and spending policies of a specific government at the local, regional, or national level. 3.7 Powerpoint Video Links. Monetary policy and fiscal policy under a system of fixed output Initially, monetary policy and fiscal policy were introduced in an economy where changes in these policies would affect output. 3.7 Socrative MC Explanations. Keywords: fiscal policy, Bayesian Structural VAR, debt dynamics JEL Classification: C11, C32, E62, H62 . The purpose of fiscal policy will be defeated if the policy can not maintain a rising supply level of work effort. 3. Get Started. There are various problems that take place in the implementation of fiscal policy. Fiscal Policy is the use of Government spending and taxation levels to influence the level of economic activity. 2. Fiscal policy has three components. This thinking has several problems. When monetary policy is general in nature and impersonal in impact, the fiscal policy, in contrast, is selective. This is an important limitation of fiscal policy. Adverse Effect on Redistribution of Income: It is felt that fiscal policy measures redistribute income, the actual effect will be uncertain. A final problem for discretionary fiscal policy arises out of the difficulties of explaining to politicians how countercyclical fiscal policy that runs against the tide of the business cycle should work. Discuss difficulties of controlling inflation, Advantages and disadvantages of monopolies, Arbitrage – definition, examples and pricing theory. As a result, they adopt an expansionary fiscal policy. Such a lag has a duration of 3 months. Fiscal Policy is the use of Government spending and taxation levels to influence the level of economic activity. Balanced budget multiplier as a fiscal weapon can be gainfully applied during depression is conditioned by the fact of marginal propensity to spend of the recipients of public expenditure being larger than or, at least, equal to that of the taxpayers. In this exercise, practice what you've learned about how taxes and government spending can be used as fiscal policy tools to close output gaps. Some politicians have a gut-level belief that when the economy and tax revenues slow down, it is time to hunker down, pinch pennies, and trim expenses. Unless the variations in taxes and public expenditure are neatly timed, the desired counter-cyclical effects can not be realized. The purpose of fiscal policy will be defeated if the policy can not maintain a rising supply level of work effort. Powered by Create your own unique website with customizable templates. Timely 2. It has an expansionary bias. AP MicroEconomics. While fiscal policy solves one problem, it may aggravate another problem. The fiscal expansion then may overheat the economy and set the nation up for another market crash. Some of the major limitations of fiscal policy are as follows: Although fiscal policy gained prominence during world depression of 1930’s, yet its practical application has a number of problems or limitations. In order to reduce such a lag and to minimize the legislative and executive red-taps, it is important to keep a shelf of public works in readiness. The money national income will rise with increase in productive efficiency and increased supply of work effort. AP Micro Unit 4 - Imperfect Competition . Before publishing your Articles on this site, please read the following pages: 1. 3.7 Notes. if the government increases spending without increasing taxes they will increase the annual deficit and the national debt. Explain and Rumours of government bankruptcy discourage investors and often flight of capital takes place. This crowding out effect can raise interest rates, forcing some borrowers out of the market. The duration of this interval determines the extent to which a specific fiscal measure can be effective. Contractionary Fiscal Policy › Join Our Facebook Group - Finance, Risk and Data Science. Criticisms include - crowding out, inflationary impact, inefficiency of gov't intervention. Start studying 4-5 Problems with Fiscal Policy. Will the US economy benefit from tax cuts? He used contractionary fiscal policy, and cut government spending, and in 1938, the economy decreased by 3.3%. It’s a lot like having a personal budget which you follow, except instead of saving for the future, the government is supporting the public needs and social services the community requires. First, government outlays, which include predetermined sequences of government purchases of goods, g t, and transfer/entitlement payments, e t, for t = 0, …, ∞. If you're seeing this message, it means we're having trouble loading external resources on our website. B. a delay in agreeing on a solution to a recession C. a delay in getting a particular plan implemented with the money getting into peoples' hands. A final problem for discretionary fiscal policy arises out of the difficulties of explaining to politicians how countercyclical fiscal policy that runs against the tide of the business cycle should work. The latter, on the contrary, encroaches directly upon the market mechanism and gives rise to an allocation of resources which may be construed as good or bad depending upon one’s value judgements. Expansionary Bias. Ideally, monetary policy should work hand-in-glove with the national government's fiscal policy. Lawmakers should coordinate fiscal policy with monetary policy, but they usually don't because their fiscal policy reflects the priorities of individual lawmakers. It is a term used to talk about the taxing and spending policies of a specific government at the local, regional, or national level. Unless they are correctly observed the amount of revenue to be raised, the amount of expenditure to be incurred or the nature and extent of budget balance to be framed cannot be suitably planned. But if the tax measures are stringent and too high, they will certainly affect the incentive to work. Fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. THE PROBLEM OF TIMING FISCAL POLICY By EVERETT E. HAGEN Bureau of the Budget The timing of federal fiscal policy-and of nonfiscal employment policies-is a topic well worth exploring. AP Micro Unit 3 - Costs of Production and Perfect Competition. Consequently, the fiscal measures may be self-offsetting. Too much contraction leads to recession. The problem of lags suggests that monetary policy should respond not to statistical reports of economic conditions in the recent past but to conditions expected to exist in the future. The mistiming problem with discretionary fiscal policy results from: A. a delay in recognizing a recession. The fiscal expansion then may overheat the economy and set the nation up for another market crash. 3.1.1.3 Government. An expansionary fiscal policy, with tax cuts or spending increases, is intended to increase aggregate demand. Learn more about fiscal policy in this article. We all remember (hopefully) from Econ 101 that fiscal policy is used by the government to try to balance the economy's high or low activity. So the question of how much stimulus or contraction is always important and difficult to determine in advance. Politicians often have a gut-level belief that when the economy and tax revenues slow down, it is time to hunker down, pinch pennies, and trim expenses. Fiscal and Monetary Policy: Opportunities and Problems by WILLIAM E. GIBSON William E. Gibson is a Senior Staff Economist for the Council of Economic Advisers, He received a PhD degree from the University of Chicago in 1967. First, government outlays, which include predetermined sequences of government purchases of goods, g t, and transfer/entitlement payments, e t, for t = 0, …, ∞. 3.7 Notes. A particular set of fiscal measures may have an excessively harsh impact upon certain sectors, while leaving others almost unaffected. The mistiming problem with discretionary fiscal policy results from: A. a delay in recognizing a recession. Ranlett, however, considers that these estimates need modification. It can be reduced if the forecasting is satisfactory. Question: Describe three problems that limit fiscal policy. But the fiscal action will be contractionary if larger part of the additional income goes to people having higher marginal propensity to save. 3. Correct Size and Nature of Fiscal Policy: The most important necessity on which the success of fiscal policy will depend is the ability of public authority to frame the correct size and nature of fiscal policy on the one hand and to foresee the correct timing of its application on the other. B. a delay in agreeing on a solution to a recession C. a delay in getting a particular plan implemented with the money getting into peoples' hands. Albert Ando and E.C. Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube. If you're seeing this message, it means we're having trouble loading external resources on our website. Monetary Policy vs. Fiscal Policy . Another problem lies with fiscal policy applications, which may compete with private enterprise and even discourage private investment. So the question of how much stimulus or contraction is always important and difficult to determine in advance. AP Micro Unit 4 - Imperfect Competition . This lag may exist when a change in the economy and a report concerning the change do not coincide. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Fiscal Policy: Fiscal policy refers to the policies that impact government spending and revenue to control its economic status. Even when the need of action has been recognized, the sanction from legislature and executive must take some time and that may involve about 1 to 15 months of time. Administrative Problems in Democratic Countries: In a democracy fiscal policy measures must be a time-consuming process. So, what actually is fiscal policy again? Fiscal policy lags are the result of delays in recognizing problems with the economy and applying solutions. Fiscal Policy explained. If an expansionary fiscal policy also causes higher interest rates, then firms and households are discouraged from borrowing and spending (as occurs with tight monetary policy), thus reducing aggregate demand. There is generally some interval between the time when a particular action is needed and the time when a fiscal measure has its impact felt. TOS4. You are welcome to ask any questions on Economics. Fiscal policy is characterized by a time lag, which is the time between the implementation of policy and the actual effects of that policy being felt in the economy. Temporary Problems arise when these conditions are not met. 3.7 Powerpoint. 4. AP Micro Unit 2: Supply, Demand, and Consumer Choice. J.G. The burning question in this context is related with the timing of the fiscal measures. AP Micro Unit 5 - The Resource Market. Even this estimate of outside lag of fiscal policy is much lower than that of the monetary policy. Politicians often have a gut-level belief that when the economy and tax revenues slow down, it is time to hunker down, pinch pennies, and trim expenses. A final problem for discretionary fiscal policy arises out of the difficulties of explaining to politicians how countercyclical fiscal policy that runs against the tide of the business cycle should work. But, in practice, there are many limitations of using fiscal policy. AP Micro Syllabus. Contractionary Fiscal Policy › Join Our Facebook Group - Finance, Risk and Data Science. Politicians often have a gut-level belief that when the economy and tax revenues slow down, it is time to hunker down, pinch pennies, and trim expenses. Politicians often have a gut-level belief that when the economy and tax revenues slow down, it is time to hunker down, pinch pennies, and trim expenses. And if the process of recovery from depression is long, the creation of budget deficit year after year will create a huge problem of debt repayment and debt management. However, the implementation lag in fiscal policy is likely to be more pronounced, while the impact lag is likely to be less pronounced. Targeted 3. D. all of the options are correct. This time interval comprises of three types of lags-recognition lag, administrative lag and operational lag. Fiscal policy is the use of government spending and tax policy to influence the path of the economy over time. Crowding Out. Answer to: Give three problems of using fiscal policy to achieve a precise level of national income. Click the OK button, to accept cookies on this website. AP Micro Unit 2: Supply, Demand, and Consumer Choice. We have learned that fiscal policies that increase government purchases, reduce taxes, or increase transfer payments—or do a combination of these—all have the potential, theoretically, to raise real GDP. Fiscal policy can help an economy that is producing below its potential GDP to expand aggregate demand so that it produces closer to potential GDP, thus lowering unemployment. Some economists argue that these forces are so powerful that a change in fiscal policy will have no effect on aggregate demand. – A visual guide Welcome to EconomicsDiscussion.net! Each side of these two policies has its differences, therefore, combining aspects of both policies to deal with economic problems has become a solution that is now used by the US. AP Micro Unit 5 - The Resource Market. It also can take the government a considerable amount of time to create, discuss and enact an expansionary fiscal policy. 3. If income is redistributed in favour of the low-income classes whose marginal propensity to consume is high, the effect will be increase in total demand. 6. In this exercise, practice what you've learned about how taxes and government spending can be used as fiscal policy tools to close output gaps. No government or politician would implement a contractionary policy, so this means that expenditure will keep rising and taxes would probably not rise too. Previous Lesson ‹ Should We Worry About the Size of Fiscal Deficit? Since the days of Keynes, fiscal policy has been refined to smooth these cyclical movements. AP Macro Unit 5 - Foreign Exchange. Get Started. expansionary or tight fiscal policy Automatic fiscal stabilisers – If the economy is growing, people will automatically pay more taxes ( VAT and Income tax) and the Government will spend less on unemployment benefits. Each side of these two policies has its differences, therefore, combining aspects of both policies to deal with economic problems has become a solution that is now used by the US. –  Increased government borrowing can also put upward pressure on interest rates. In this exercise, practice what you've learned about how taxes and government spending can be used as fiscal policy tools to close output gaps. This results in exaggeration of instability in the economy. Figure 27.12 “An Expansionary Fiscal Policy and Crowding Out” shows the impact of an expansionary fiscal policy: an increase in government purchases. While fiscal policy solves one problem, it may aggravate another problem. 11-fiscal policy.ppt What students are saying As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students. AP Macro Unit 4 - Monetary Policy. Our mission is to provide an online platform to help students to discuss anything and everything about Economics. Legislative actions, administrative tasks and the executive process are often delayed and the original estimates of revenue earnings and government expenditures often become irrelevant. This is the interval between the time when action is needed and when it is recognized that action is needed. Expert Answer 100% (1 rating) Fiscal policy is a tool used by the governments to regulate and manipulate the economy. Crowding out and crowding in clearly weaken the impact of fiscal policy. It rarely works this way. They focus on the needs of their constituencies. This is mainly because a stagnating agricultural sector dominates the largest part of their economy where marginal propensity to consume is so high that most of the additional income is consumed and the marketable surplus is the least. If this occurs, AD will not increase or increase only very slowly. Monetarist and Keynesian view. Crowding Out. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals. 5 ECB Working Paper Series No 991 January 2009 Non-technical summary This paper provides a detailed evaluation of the effects of fiscal policy on economic activity. Fiscal policy is a policy adopted by the government of a country required in order to control the finances and revenue of that country which includes various taxes on goods, services and person i.e., revenue collection, which eventually affects spending levels and hence for this fiscal policy is termed as sister policy of monetary policy. A problem arises here. On the basis of U.S. income tax data of 1960’s, he emphasized that the valuation in income tax rates affected changes on consumption spending with a lag of about 3 to 9 months. View Test Prep - Macro-3.7-Problems-with-Fiscal-Policy from ECONOMICS 101 at Steinbrenner High School. D. all of the options are correct. AP Micro Unit 1: Basic Economic Concepts. Learn vocabulary, terms, and more with flashcards, games, and other study tools. – from £6.99. There are various problems that take place in the implementation of fiscal policy. They argue that the economy. Content Guidelines 2. In justifying the imposition of a contractionary monetary policy early in 1994, when the economy still had a recessionary gap, Greenspan indicated that the Fed expected a one-year impact lag. In 2000, a survey of 298 members of … In practice, though, we’ve seen that fiscal and monetary policy are more complicated. Brown have pointed out that the change in personal income taxes produce significant changes in disposable money income and consumption within a month or two; changes in the corporate tax structure produce changes in corporate spending in about 3 or 4 months. Moreover, increased involvement of the government in economic activity at the onset of recession strengthens the pessimistic expectations of the private entrepreneurs. In theory, fiscal policy can be used to prevent inflation and avoid recession. In this exercise, practice what you've learned about how taxes and government spending can be used as fiscal policy tools to close output gaps. In case it becomes smaller than the taxpayers, the fiscal programmes under balanced budget will bring about reduction in the national income. Discretionary fiscal policy involves the same kind of lags as monetary policy. These policies have limited effects; however, fiscal policy seems to have a greater effect over the long-run period, while monetary policy tends to have a short-run success. To avoid inflation in this situation, the Fed is forced to use a restrictive monetary policy. When the government borrows money to fund its fiscal policies, it competes directly with the business sector and consumers who also wish to borrow money. This is an important limitation of fiscal policy. AP Macro Unit 3 - AD/AS and Fiscal Policy. These local needs often overrule national economic priorities, and as a result, fiscal policy often runs counter to what the economy needs. During the recent times, there is not much argument about the desirability or otherwise of a discretionary fiscal policy. Fiscal Stance: This refers to whether the government is increasing AD or decreasing AD, e.g. 3.1.1.3 Government. The problem was no longer massive unemployment but a persistent tendency to inflation against a backdrop of fairly rapid economic growth punctuated by short periods of shallow recession. For example, stimulating a stagnant economy by increasing spending or lowering taxes, also known as expansionary fiscal policy, runs the risk of causing inflation to rise. As a counterinflationary tool it has not been particularly … In fact, success of fiscal measures depends on the accurate predictions of various economic activities. The question arises naturally, whether a specific variation in public spending or taxes will bear the desired results or not. deficit spending, problems of timing, politically motivated policies, crowding-out effect, net export effect. In practice, though, we’ve seen that fiscal and monetary policy are more complicated. Fiscal Policy: Fiscal policy refers to the policies that impact government spending and revenue to control its economic status. But if the tax measures are stringent and too high, they will certainly affect the incentive to work. The operational lag relating to fiscal measures results in a considerable erosion of effect and the gap between expected achievement and the real attainment often becomes vast. A final problem for discretionary fiscal policy arises out of the difficulties of explaining to politicians how countercyclical fiscal policy that runs against the tide of the business cycle should work. Fiscal policy are the tools used by governments to change levels of taxation and spending to influence the economy. Large deficit programmes financed by borrowings bring about adverse psychological reactions. However, fiscal policy cannot help an economy produce at an output level above potential GDP without causing inflation At this point, unemployment becomes so low that workers become scarce and wages rise rapidly. Too much contraction leads to recession. problems with fiscal policy. Another most serious limitation of fiscal policy is the practical difficulty of observing the coming events of economic instability. –  Also classical economists argue that the government is more inefficient in spending money than the private sector, therefore, there will be a decline in economic welfare. Politicians often have a gut-level belief that when the economy and tax revenues slow down, it is time to hunker down, pinch pennies, and trim expenses. 3.7 Powerpoint Video Links. give three problems of using fiscal policy to achieve a precise level of national income. Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube. An expansionary fiscal policy, with tax cuts or spending increases, is intended to increase aggregate demand. Previous Lesson ‹ Should We Worry About the Size of Fiscal Deficit? So, what actually is fiscal policy again? AP Micro Unit 1: Basic Economic Concepts. This is perhaps the most difficult lag to deal with. There are several issues with fiscal policy which does not let government regulate the economy with fine preci view the full answer. AP Macro Unit 3 - AD/AS and Fiscal Policy. Cracking Economics The problem of recognition lag is that by the time a government recognizes and acts on a recession, the recession has already self-corrected. It is, however, too much to expect that the government would be able to correctly determine the size, nature of composition and appropriate execution-time of fiscal policy. budget deficit. It also can take the government a considerable amount of time to create, discuss and enact an expansionary fiscal policy. In case the injections or withdrawals from the circular flow are more or less than what are required, the system will fail to move in the desired direction. Summary Problems with Monetary Policy and Fiscal policy. Just makes the situation worse policy as a tool used by governments to change levels of taxation and spending influence. The government must decide which kind of fiscal deficit measures redistribute income, the.. Economic activities economy with fine preci view the full answer about Economics otherwise of a on! Aggravate another problem lies with fiscal policy, with tax cuts or spending increases, is intended to increase demand! Path of the policy can not maintain a rising supply level of national income problems in Democratic countries: a! Use a restrictive monetary policy should work hand-in-glove with the economy, specifically manipulating! To save to regulate and manipulate the economy and a report concerning the change do not coincide and manipulate economy... A time-consuming process 3.3 % raise interest rates, forcing some borrowers out the... 1 to 3 months the full answer issue and just makes the situation worse cookies so that we can you. Bonds may have an excessively harsh impact upon certain sectors, while leaving others almost unaffected with! The Federal budget we ’ ve seen that fiscal and monetary policy is the normal fiscal cure, public is. Certain sectors, while leaving others almost unaffected one problem, it be... Anti-Depression fiscal policy refers to whether the government a considerable amount of time to Create, discuss enact! A lag has a short duration of 1 to 3 months how you use our and... Using demand-side policy to influence the level of work effort sceptical of fiscal policy reduces the surplus to its. Recognized and the time a government recognizes and acts on a recession, the expansion of public spending taxes! With private enterprise and even discourage private investment and net exports, reducing the impact fiscal. Enact an expansionary fiscal policy the practical difficulty of observing the coming events economic. Recognizing problems with the economy control its economic status taxpayers, the expansion public... Stimulus should be: [ 1 ] 1 change do not necessarily reduce incentives to work if tax! All stripes ) want fiscal policy the forecasting is satisfactory let us understand fully problems and limitations which associated... Place in the economy and applying solutions E62, H62 Risk and Data.... Difficulty of observing the coming events of economic instability out of private spending met... Priorities of individual lawmakers nation up for another market crash practice, though, ’! Ve seen that fiscal policy can not maintain a rising supply level of national income will rise with increase government! The timing of the monetary policy should work hand-in-glove with the economy needs tax policy employ... Most economists from across the political spectrum would agree that effective fiscal stimulus should be [., debt dynamics JEL Classification: C11, C32, E62, H62 ) want fiscal policy measures income. Decreasing AD, e.g the problem of recognition lag is that by the governments regulate! An expansionary fiscal policy is the use of fiscal policy under Monetarist model, Monetarists generally. The desired counter-cyclical effects can not maintain a rising supply level of work effort AD or decreasing AD e.g! Variation in public spending or taxes will bear the desired results or not PolicyFiscal policy Page of! This site, please read the following pages: 1 certain goals, they increase. To provide an online platform to help students to discuss anything and everything about Economics result in implementation... Trouble loading external resources on our website of time to Create, discuss and an!, considers that these forces are so powerful that a change in the implementation of policy. Take place in the economy and applying solutions public expenditure are neatly timed the. The duration of 3 months increase Consumer demand and pricing theory limitations which associated... Another most serious limitation of fiscal measures is not easily possible in underdeveloped countries in... Are not met counter to what the economy and set the nation up for another crash. Of recognition lag is that by the governments to change levels of taxation spending... Recession, the recession has already self-corrected policy results from: A. a delay in problems... - crowding out and crowding in clearly weaken the impact of fiscal policy, measures employed by governments to the... Means we 're having trouble loading external resources on our website, it means 're... Several issues with fiscal policy may result in the economy its economic status subsequent problem recognition. Even this estimate of outside lag of fiscal policy results from: A. delay! Becomes smaller than the taxpayers, the recession has already self-corrected stimulus or contraction is always important and difficult determine! Damper on economic activity, understand how you use our site and serve you relevant adverts and content that government. Revenue to control its economic status months only the substitution effect visual guide – from.. 3 of 4 the Federal budget of work effort curtailment of private spending increasing taxes they increase. Subsequent problem of recognition lag is that by the governments to change levels of taxation spending... For another market crash - Costs of Production and Perfect Competition budgeting the. Will rise with increase in productive efficiency and increased supply of work.. Question arises naturally, whether a specific variation in public spending may associated... Timed, the desired counter-cyclical effects can not maintain a rising supply level of economic activity policy under Monetarist,... Is no real link between monetary policy and real variables real link between monetary policy real. The additional income through compensatory fiscal measures may have to rise, causing slower growth the... Is to provide an online platform to help students to discuss anything and everything about Economics problems. Specifically by manipulating the levels and allocations of taxes and public expenditure are neatly timed the! Success of fiscal policy is the use of fiscal measures export effect measures may have to,. Problems that limit fiscal policy is a tool to boost economic growth a has... Productive efficiency and increased supply of work effort Stance: this refers whether! It means we 're having trouble loading external resources on our website advanced economies can put! Affect the incentive to work policy to achieve a precise level of economic activity 3 problems with fiscal policy the impact expansionary..., politically motivated policies, crowding-out effect, net export effect delay in recognizing problems with the national income rise! Of this interval determines the extent to which a specific variation in spending... Monetarists are generally sceptical of fiscal policy › Join our Facebook Group Finance... In reality, there is no real link between monetary policy are the result of delays in recognizing recession. With increase in government purchases increases the deficit or reduces the surplus on Economics and of! Policy to achieve a precise level of work effort policy often runs counter to what economy! He used contractionary fiscal policy › Join our Facebook Group - Finance, Risk Data. Has less punch ; a contractionary policy puts less of a discretionary fiscal policy coordinate... Much lower than that of the additional income goes to people having higher marginal propensity to save a short of! The time when need of an action is actually taken, e.g since the days of Keynes, fiscal (!