Essay about Fiscal Policy - 498 Words

Fiscal Policy Most people nowadays seem to think that fiscal policy cannot be used to influence economic activity, and they are supported in this view by the majority of professional macroeconomists. Students are taught that output and employment are determined by the demands and supplies of individuals interacting in a gigantic market and that governments cannot alter the outcome of this process except temporarily and destructively. The Congressional Budget Office (CBO) bases its projections of the federal budget on assumptions about output that are largely independent of fiscal policy. An increase in federal expenditure, the CBO assumes, will have no positive effect at all on real output; rather, it will have a negative effect,†¦show more content†¦It is true that the present expansion, which has now lasted for more than six years, has been accompanied by a tightening of the fiscal stance, but this has been possible only because there has simultaneously been a long and sustained expansi on of private expenditure financed by borrowing. The article concludes that the expansion of net lending cannot continue for much longer without making debt-income levels impossibly high; therefore, in contradiction to the political consensus of the moment, fiscal policy will have to be expanded substantially and progressively compared with what the CBO is now projecting if a prolonged recession is to be avoided. The Theory Behind It We assume that an addition to government expenditure increases the gross domestic product (GDP) directly while a cut in the tax rate adds to private disposable income, thereby increasing GDP indirectly. We maintain that the overall impact of the governments fiscal operations on the economy can be measured by combining these two policy instruments into a single constructed variable - the total flow of government expenditure divided by the average tax rate, which we call the fiscal stance, the definition of which implies that it would exactly equal GDP if the budget were balanced.(1) The budget deficit, measured ex-post facto, is a bad measure of theShow MoreRelatedFiscal Policy And Fiscal Policies1193 Words   |  5 Pagesrecession to containing inflation, achieving full employment to increasing economic output. Fiscal policy is one of the tools often used to realise these goals and create financial stability. There are two ways in which fiscal policy can be implemented, either a con tractionary fiscal policy, or an expansionary fiscal policy, which I will explore in this assignment. The aim of an expansionary fiscal policy is to raise expenditure, whereby economic output and household income will also increase. ThisRead MoreFiscal Policy And Fiscal Policies838 Words   |  4 Pagesactive fiscal policy† (CNBC) in order to have its economy back on the reasonable range. Fiscal policy affects aggregate demand depending on the government’s spending and taxation. Thus, if the government decides to make changes in its taxation such as discounting corporate taxes, the aggregate demand curve will shift. In addition to that, money spent on public services and welfares will increase government spending which will affect aggregate demand as well. Economic Analysis Fiscal Policy â€Å"FiscalRead MoreFiscal Policy And Fiscal Policies1560 Words   |  7 PagesFiscal Policy Brooks (2012) defines that fiscal policy is adjusting government revenue and spending in order to influence the direction of the economy and meet the economic goals of the country. The two main tools in fiscal policy are taxes and expenditure. Fiscal policy is set by the government and parliament and often used a combination with monetary policy, which set by Reserve Bank of Australia as an example. Furthermore, this essay discusses the Australian government fiscal policies during theRead MoreFiscal Policy And Fiscal Policies1046 Words   |  5 PagesFiscal Policy Generally fiscal policy is the set of strategies that government implements or plans to use with certain activities such as the collection of revenues and taxes and expenditure that can influence the overall economic condition of the nation. A well written or planned fiscal policy can lead the nation to the steady path of the strong economy, increase employment and also maintains healthy inflation. Every country needs fiscal policy as fiscal policy plays a vital role on monitoringRead MoreFiscal Policy And Monetary Policy862 Words   |  4 PagesFiscal Policy vs Monetary Policy Fiscal policy is a way for the government to control the economy financially. The Federal Government sometimes partakes in actions to stimulate the economy. Fiscal Policy focuses on changing government spending, controlling inflation, encouraging economic growth, and to reach full employment. Monetary policy is a policy the Federal Reserve Board enforces which consists of changes in the money supply which influences the interest rates in the economy. This can helpRead MoreEssay on Fiscal Policy718 Words   |  3 Pages Fiscal Policy can be explained in many ways, for example. Fiscal policy is the use of the government budget to affect an economy. When the government decides on the taxes that it collects, the transfer payments it gives out, or the goods and services that it purchases, it is engaging in fiscal policy. The primary economic impact of any change in the government budget is felt by particular groups—a tax cut for families with children, for example, raises the disposable income of such families. DiscussionsRead MoreFiscal Policy2022 Words   |  9 Pagesnation. There are many tools to stabilize the economy and reduce the frequency and the altitude of economic fluctuations. Among these tools are the fiscal policy and monetary policy. This report discus ses the fiscal policy and why the governments use this too to stabilize the economy and encounter the economic fluctuations. Definition Fiscal policy is a macroeconomic tool used by the government through the control of taxation and government spending in an effort to affect the business cycle andRead MoreFiscal Policy, Crowding out, Supply-side, Economics1957 Words   |  8 Pagesï » ¿ Economics Assignment #2 Question I. Fiscal Policy and the Crowding Out Effect. (a) What is the essence of the accounting identity (the so called saving investment identity) that the two distinguished professors refer to? Saving investment identity  is a concept in National Income accounting that states that the amount saved (S) in an economy is equal to the amount invested (I). It is an equilibrium expressed in terms ofRead MoreFiscal Policies And The Fiscal Policy904 Words   |  4 PagesBefore we talk about ways to assess fiscal policy of an economy, I would like to describe what we mean by fiscal policies and why it is important for an economy. Fiscal policy is the use of government revenues and expenditure to influence growth of an economy. Fiscal policies that increase demand in an economy are called as expansionary policy whereas those which reduce demand are called as contractionary fiscal policies. These policies are most effective in a fixed exchange rate regime with perfectRead MoreFiscal Policies And The Fiscal Policy1091 Words   |  5 PagesThe fiscal policy is the means by which the government of a country adjusts its spending levels and the tax rates that are applied so as to monit or and influence a country’s economy. On the general scale, there are two types of fiscal policies. These are the contractionary and the expansionary fiscal policy. The expansionary policy is used mostly to spur economic growth in the times of low periods in the business years (Langdana, F. K. p.34) The contractionary policy on the other hand seeks to reduce