Discretionary Fiscal Policy

Discretionary Fiscal Policy Assignment Help

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Role of Discretionary Fiscal Policy

Fiscal policy along with the monetary policy aim at minimising or virtually eliminating all fluctuations in private sector spending (by spending offsetting them by the public sector spending) thus seeking to restore the GDP to its potential level or very near it at all the times. Use of monetary and fiscal instrument to eliminate such fluctuation in GDP at all the times is called Fine Tuning. However, the lags in formulation and implementation of the prioritize fiscal policy present such fine tuning of the economy.

Therefore, many economists advocate Gross Tuning of the economy which means occasional use of monetary and fiscal instrument to remove only large and persistent GDP gaps and pushing the economy towards full employment while leaving the small gaps to be filled by the automatic adjustment mechanism. Some other economists believe that fiscal instrument should not used at all for economic stabilization. However, governments everywhere so use fiscal policy in conjunction with monetary policy instrument to prevent server recessions and acute inflationary pressure. The fiscal policy, in these days, a very important component of economic stabilization policy.


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