Principles of macroeconomics textbooks devote a great deal of space to countercyclical fiscal policy, but generally provide only scant coverage to factors that make its application difficult in the real world. In fact economists are generally skeptical of the ability of fiscal policy to smooth the business cycle because of the policy-lag problem. This paper provides a metaphor—a horserace between active policy and the self-correcting mechanism—that can help students move into the higher levels of Bloom’s taxonomy of learning (analyzing, synthesizing, and evaluating) with respect to fiscal policy. The metaphor can be extended to include discretionary monetary policy as well.
|Journal||Journal of Economics and Finance Education|
|State||Published - Jun 8 2017|