Effects Of Positive Financial Policy

Government plays a very important role in modern economy.Compared to developed nations, developing countries rarely have maturemonetary market. At this point, fiscal policy is extremely important todeveloping countries. This paper focuses on the fiscal policy and alsoanalysis its impacts on the whole economy. At the same time, it’s widelybelieved that every fiscal policy has an externality, so we also discuss theexternalities involved. And then we mainly talk about the four-trillioninvestments introduced by China in November of2008. We focus on itsmany details and its effects to Chinese economy. Finally we will analysissome so-called externalities of the four-trillion investments.This paper includes three main chapters. The first chapter covers thefiscal policies ever used in China since1979. We analysis the policy andthe economic effects the fiscal policies brought about. And then wemainly discuss the externality with the fiscal policy. We find that there aredifference between economic theory and real markets in China. For thisreason, we mainly talk about the internal reasons why China has its owneconomic characteristics.In the second chapter, we mainly talk about the four-trillioninvestments in China. Four-trillion investments policy is a series of fiscalpolicies intended to stimulate cold economy after the sub-prime crisis ofU.S. in2008. We first introduce many details about this fiscal policy and its application in China. And then we analysis the positive effects itbrings to China’s developing markets.In the third chapter, we cover some so-called externalities about thefour-trillion investments. And these so-called externalities includesqueezing-out effect, inflation and the distorted housing price in China.Our conclusion is that these problems have nothing to do with thefour-trillion investments.In the final part we conclude that fiscal policy cause several positiveeffects to China’s economy, meanwhile it actually cause very limitednegative externality.