I am working on an economics assignment related to fiscal policy and its effects on inflation. I need help to assess how different fiscal policies can influence inflation rates in an economy. Specifically, I'm interested in understanding the mechanisms through which government spending and taxation affect inflation and the potential trade-offs involved.
Please provide a detailed analysis of around 500-1000 words, focusing on the following points:
1. Theoretical framework: Explain how fiscal policy can influence aggregate demand and supply, and consequently, inflation.
2. Historical context: Provide examples of fiscal policies implemented in the past (preferably from different countries) and their impact on inflation.
3. Current trends: Discuss any recent fiscal policy measures taken by major economies and how they are expected to influence inflation in the short and long term.
4. Challenges and limitations: Analyze potential challenges in using fiscal policy as a tool for controlling inflation and any possible limitations.
If possible, include relevant graphs or charts to support the analysis. I would appreciate any references to academic papers or economic reports that could further my understanding of this topic. Thank you.
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