Anyone tuning in to the Chancellor’s Autumn Statement could be forgiven for not working out the overall direction of fiscal policy. The flood of numbers and projections were enough to confuse anyone and the intention was possibly to achieve exactly that!
Is Fiscal policy contractionary, expansionary, or is it becoming less expansionary? The simple answer to this question is that, even though austerity is a frequently used term, fiscal policy is actually expansionary and will remain so at least until 2019/20. It is hardly surprising that very few people have a firm grasp of the position. As Fiscal Policy lies at the heart of the A-level macro course we thought it was worth spending some time on this subject.
In this week’s EzyEconomics news Jack Matthews attempts to make sense of it all by using A-level style AS/AD analysis. He also looks ahead to consider just what the long-term economic impact of the £1.75 trillion of unpaid debt successive governments will have borrowed on our behalf by 2019-20 (the year when we might actually begin to start paying off this debt). Although this and similar numbers are often glossed over, it actually amounts to an almost unbelievable £27,000 per capita on top of the money consumers and firms borrow in their own right.
This means the reality is that economic growth in the future will be slower than it would be otherwise. Jack takes time to explain and evaluate the economic phenomena that will drive this long and prolonged slowdown.