Supply-Side Effects of Fiscal Policy

4 important questions on Supply-Side Effects of Fiscal Policy

How does fiscal policy influence potential output (Y*)?

Investment in infrastructure increases potential output. It enhances productivity through improved roads, ports, and networking.

What effects do taxes have on potential output (Y*)?

Lower taxes encourage more work and investment, potentially increasing Y*.

How do transfers relate to work incentives and potential output (Y*)?

Higher transfers can diminish work incentives but boost education and health for productivity.
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What role does infrastructure play in affecting Y*?

Better infrastructure directly boosts productivity and expands the capacity to produce goods.

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