Fiscal Policy in a Low Interest Rate Environment

Policymakers today need to be ready to employ an expansionary fiscal policy to revive a depressed economy in our current interest rate environment. Tax cuts and cash transfers, both of which we have recently seen, have raised consumer spending, stimulating production of consumer goods and in turn inducing businesses to raise their investment spending in order to produce more consumer goods. Government purchases stimulate the production of the goods<Tab/> that they buy. This circle of activity generates income that further raises consumer spending.…