Fiscal Stimulus free essay sample

For the short term, the government has to immediately stabilize and control the economy through policies. Furthermore, these policies must steer the boat in the appropriate direction based on the situation. Government expenditure policy is one of the most important tools in economy of Vietnam nowadays. In order to have effective expanding or tightening investment, the government need to have a particular view about the economy, to understand the situation, and to set the priority for the entire nation. Then, the fiscal policies would play their crucial roles. Fiscal policy therefore is the use of government taxes and spending to alter macroeconomic outcomes (The Macro Economy Today, 2010, p. 226) Fiscal policy with a focus on fiscal stimulus is this paper’s target. Thus, what is fiscal stimulus? And why is it important? When there is a discriminated recession in the GDP gap of the economy, the state will use fiscal stimulus, in which the following tools are enacted: increasing government spending (both public investment and transfer), together with cutting taxes in order to shift the AD curve to the right. We will write a custom essay sample on Fiscal Stimulus or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Conversely, when the economy is expanding rapidly, the government uses fiscal restraint. This is the policy that would tighten public spending and tax increases aimed at preventing the economy from falling into overheating and leading to collapse by push entire AD curve to the left. The GDP gaps are illustrated in following figure 1. Figure 1. GDP Gaps Source: Adapted from Keynesian Theory model (The Macro Economy Today, 2010, p. 191) The Keynesian model has convinced that the government should implement effective methods to increase aggregate demand and stimulate consumption production.