Even though the ideas implicit in the Phillips Curve were derived from longrun d

Question

Even though the ideas implicit in the Phillips Curve were derived from longrun data from the British economy, it turned out that the trade-off between unemployment and inflation implied by the Phillips Curve was a short-run phenomenon. This implies that using an expansionary fiscal policy produces long-term pain for short-term gain. This was the accepted economic theory in the 1970s. With that in mind, why do you think politicians in most democracies during the 1970s, including Canada and the U.S., opted for the short-term gain despite being aware of the long-term pain?

Explanation / Answer

We know that the expansionary fiscal policy means that tax cuts and increased government spending. This policy will give the expansion of the economy and reduced the deficit of the country.also it favored the aggregate demand and creates surpluses. Most of the policymakers are criticised this policy enacted by the government for the aim of short-term enhancement. The present stages of development the policy of expansionary fiscal policy is counterproductive. Which means that the economy is close to a full employment level, the fiscal stimulus will lead to increase in the debt-GDP ratio. The overvalued dollar also widened the gap of fiscal deficit. Both the countries like USA and Canada using this policy because of the speedy recovery of the economy from the recession. It increase the short-term impact of the economy and pains in the long run. But policymakers in USA and Canada may think that the after the recovery economy will makes the sustainable growth.

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