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Advantages Of Expansionary Fiscal Policy

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The article that I chose to work on is about Philippines government planning to use expansionary fiscal policy in order to reach their macroeconomic objectives, which in this case are decreasing unemployment and increasing economic growth of a country. Fiscal policy means that government is trying to affect aggregate demand (AD) by increasing or decreasing taxes and government spending. Unemployment refers to number of people in a country who are willing and able to work and are activly looking for a job but can not find one while economic growth refers to increase productive capacity of a country which is measured by GNP (Gross national product).

On this graph we can see that Philippines government used Keynesian theory which states …show more content…

By using expansionary fiscal policy actual growth will also be achieved. Actual growth refers to increase in real GDP (A total number of goods and services that are produced in one year term by one economy) and it is affected by demand-side policies which is fiscal policy, so if AD increases actual growth will also increase. The economic growth will also be achieved, because as I mentioned in previous paragraph GNP will increase and it will cause economic growth to be achieved. Because of increased government spending and decrease in taxes there will be a lot of new facilities and roads built and new workers employed which will cause better standard of living in Philippines. Government spending will also affect positively on supply-side policies which refers to quantity and quality of Factors of Production. By government spending, there will be higher number of educated people and workers which means higher quality and if workers are better trained higher quantity also. Decrease in taxes will also attract many foreign investors due to lower costs of production, which was one of the governments …show more content…

So if AD rises enormously, price level will also probably rise enormously which will cause high inflation. Expansionary fiscal policy will reduce unemployment in a short run, but when the country starts grow there will be higher demand for educated workers, which can be educated only if government spends even more, which might be just too much for the government to handle. When Philippines government start to borrow more demand for borrowing will rise and cause interest rates to increase also.

Taking in consideration all advantages and disadvantages of implementing expansionary fiscal policy in Philippines in my opinion Philippines should implement it because it will decrease their unemployment and increase standard of living. Philippines government should be careful not to over spend and not to cause

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