Order 855096.edited

Running head: ARTICLE REVIEW: FISCAL POLICY 1
Article review, Fiscal Policy by David Weil
Name
University
ARTICLE REVIEW: FISCAL POLICY 2
Article review, "Fiscal Policy" by David Weil
Article to be reviewed
Weil, N. D. (n.d.). Fiscal Policy. Econlib. Retrieved from
https://www.econlib.org/library/Enc/FiscalPolicy.html
In the article Fiscal Policy, David Weil, we are taken through the standard definition of
fiscal policy, as the name suggests. Through reading, I realized that the author was basing the
fiscal policy concept on the government perspective where recession and boom are factors.
However, he has managed to put up a good argument about the topic. He starts the article by
presenting the idea of fiscal policy as an element of the economy. He bases his argument by
providing statistical evidence and historical figures.
Weil begins by pointing readers through a quicker application of the concept of fiscal
policy in economic taxation and spending. He then presents statistical facts and figures of the
federal budget spending from 1962–2003 (Weil, n.d.). He also talks about the primary effect of
fiscal policy.
Changing fiscal policy would mean interfering with aggregate goods and services
demand where one of two channels gets strained. A change also interferes with the composition
of aggregate demand (Weil, n.d.). In a common scenario, this can be applied in a government
experiencing recession whereby a tax stimulus is applied to increase the aggregate demand and
propel economic growth. This approach is based on the low taxes paid by people meaning that
people have more funds to invest or spend, fueling high demand. The author's argument provides
readers with a quick overview of the concept of fiscal policy based on demand.
The author illustrates that trade balance and exchange rate is affected in the fiscal policy
of an open economy. Raising interest rates because of government borrowing would attract
foreign capital when a fiscal expansion is exercised. He informs readers about the effect of
performing fiscal expansion in trade activities. We see that it allows the U.S. to import goods at a
lower price and export them at a higher price. It is critical information since we get to know how
to trade activities are influenced by fiscal policy and realize the effect on states which do not
practice the same.
Moreover, we are presented with the case in terms of the national debt and government
asset acquiring. Many states can perform fiscal expansion in trade activities and enjoy better
import and export options. It can also suggest fair trade activities. Similarly, it can affect the
quality of goods imported to the U.S. while the nation exports high-quality goods.
Weil presents us with the importance of fiscal policy in economic management,
particularly the GDP, as it can affect the total output. He emphasizes the impact of fiscal
expansion on GDP (Weil, n.d.). The business cycle determines the demand for goods and
services. An economy facing recession can profit from increasing fiscal policy where prices will
be higher while the output becomes lower.
He suggests that fiscal policy can lead to economic stabilization when a government
faces a recession and solve the problem of unemployment. This way, economic growth is
maintained and balances the budgets. He also suggests programs that governments can
implement during recessions and booms, such as automatic stabilizer programs. He gives an
example of unemployment insurance and tax code (Weil, n.d.). In a way, these applications all
reflect on government economies that are experiencing problems.

Weil presents the stance of other economists on the impact of fiscal policies on future
taxes and how customer savings are influenced. The economists imply that a current tax cut
would mean higher future taxes. These saved taxes would be used to pay for taxes in the future.
This is a concept of the Ricardian equivalence, which, according to Weil, will not influence
national savings because private savings would equate government savings (Weil, n.d.). He
argues that perhaps the economists were wrong on their argument and that his argument about
budget deficits crowding out private investments would not be right (Weil, n.d.). He argues that
the Ricardian equivalence cannot help the government solve its economic issues as spenders will
spend the surplus funds they receive from tax cuts. It will only raise aggregate demand while
lowering national savings. He also mentions the take of most economists regarding the Ricardian
equivalence in relation to tax changes. These arguments suggest that the nature of economy is
not subject to tax cuts nor the Ricardian equivalence.
Towards the end, the author mentions how fiscal policy affects the national economy
through incentive changes. He suggests that when taxing is done, it can discourage the activity.
This can be meant to say that any reduction, taxes or general deductions would not determine
national economy as the government can still maintain output and even increase it.
The author concludes by mentioning the challenge of using fiscal policy in stabilizing
fluctuations in the long and short runs on natural production. He mentions that a change would
lead to other changes that will provide advantages or disadvantages of the economy in different
settings. He says that the resulting factor for this change is an institutional enthusiasm in a
recession that is not equated by varying policies during a boom. He mentions that the benefits of
an expansionary policy will suddenly be felt. According to him, a good fiscal policy during
recession or boom depends on political factors and not economical.


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Running head: ARTICLE REVIEW: FISCAL POLICY 1

Article review, Fiscal Policy by David Weil

Article review, "Fiscal Policy" by David Weil

Weil, N. D. (n.d.). Fiscal Policy. Econlib. Retrieved from

providing statistical evidence and historical figures.

practice the same.

Weil presents us with the importance of fiscal policy in economic management,

be higher while the output becomes lower.

reflect on government economies that are experiencing problems.

not subject to tax cuts nor the Ricardian equivalence.

recession or boom depends on political factors and not economical.

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