1 What is countercyclical fiscal policy 2 Discuss why Japans

1. What is countercyclical fiscal policy?

2. Discuss why Japan’s fiscal expansionary polices to revive the economy during its recession in the 1990s did not bring the expected effect? Why there are problems in predicting the magnitude of the effects of countercyclical fiscal policy?

3. Explain the other shortcomings of countercyclical fiscal policy.

Solution

1.

countercyclical fiscal policy:

As the names tell itself countercyclical means the opposite of the cycle, so countercyclical fiscal policy means the government\'s opposite response to the current market conditions such as the government tries to increase spending and cut taxes during the recessions or negative economic growth times while the government go for reduced spending and higher taxes when the economy is in the high growth phase. It also acts as the economic stabilizers and keeps the prices in control indirectly.

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