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  • Fiscal Policy 6 - Fiscal Policy in Action and Pakistan

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    Zeeshan Hashmi
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    Fiscal policy can be used to influence aggregate demand (AD) in the short-run and aggregate supply (AS) in the long-run. The document provides an example of how a shift in fiscal policy that increases government spending (G) from AD=C+I+G to AD1 would lead to a decrease in unemployment from 5% to 3% in the short-run. However, this higher spending could also cause inflation to rise from 2.5% to 2.3%. Supply-side policies, on the other hand, can help shift the aggregate supply curve to the right, increasing the economy's long-run productive capacity and allowing growth without increasing inflation.

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    Fiscal policy can be used to influence aggregate demand (AD) in the short-run and aggregate supply (AS) in the long-run. The document provides an example of how a shift in fiscal policy that increases government spending (G) from AD=C+I+G to AD1 would lead to a decrease in unemployment from 5% to 3% in the short-run. However, this higher spending could also cause inflation to rise from 2.5% to 2.3%. Supply-side policies, on the other hand, can help shift the aggregate supply curve to the right, increasing the economy's long-run productive capacity and allowing growth without increasing inflation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    18 views9 pages

    Fiscal Policy 6 - Fiscal Policy in Action and Pakistan

    Uploaded by

    Zeeshan Hashmi
    Fiscal policy can be used to influence aggregate demand (AD) in the short-run and aggregate supply (AS) in the long-run. The document provides an example of how a shift in fiscal policy that increases government spending (G) from AD=C+I+G to AD1 would lead to a decrease in unemployment from 5% to 3% in the short-run. However, this higher spending could also cause inflation to rise from 2.5% to 2.3%. Supply-side policies, on the other hand, can help shift the aggregate supply curve to the right, increasing the economy's long-run productive capacity and allowing growth without increasing inflation.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 9

    Fiscal Policy In Action

    Inflation
    AS

    rise
    Theinan
    ADna
    leads to increase
    cet une fal of in real tiona
    AD=CIf
    AD therefore
    eris paribus, mployment would
    Assumegov+I+Gern
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    Apartto AD1 f
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    affected directly or
    rom
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    giving
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    effects:
    an
    2.5% unemployment
    rate of 5% (U
    = 5%)
    2.0%
    AD 1

    AD

    U=5% U=3% Real National Income


    Fiscal Policy in Action
    • Fiscal Policy influences AD in the short
    term but can be used to affect AS in the
    long run – depending on the nature of the
    policy.
    Supply Side Policy
    Inflation
    AS1 AS
    Increases in long-term
    capacity can help the economy to grow without und
    Supply side
    policies can help
    to push the AS
    curve to the right
    increasing the
    2.3% capacity of the
    2.0% economy from Yf
    to Yf2

    AD

    Yf Yf2
    Real National Income
    qcad
    General Ayub’s era General 2ia's General Musharraf's era
    era
    ** -* General Yahya's era ” *

    12
    ” 1998 hluclear Tests and Econ Sanctions
    10.Z2 g.gg 9.79

    10 B.96
    8.71
    7.45 7.73 7.57
    8

    4.18 4.14

    4.44
    L6
    3.08
    2.03 )f °‘°* z.1
    0.88 1.Z3
    0

    Afghan-5ovietwar Earthquake
    1965 Pak-India war Floodst
    Koi hmird is pute
    Econ sencttons under post9/11
    Pressler Amendment
    1971Pad-lndiawar
    creotlon o[ 8ongIodesh G0P data spuree.•StoteBantofPakIfitgn/20d7jon6f 6conomle
    Su rveyof fi›okIs(o n(2013-Id) 1999 Pd#iStdN- I fidig COOfliCt
    #orgif wor
    TFP

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