What is Fiscal Policy?

Topics: Public finance, Keynesian economics, Macroeconomics Pages: 2 (469 words) Published: April 22, 2014
What is Fiscal Policy?
One of the features that helps identify the economic direction of a country is fiscal policy. The government utilizes fiscal policy to control the economy through adjustment in spending levels and revenue. According to the theories of John Maynard Keynes, the British economist in regard fiscal policy, the decreasing or increasing expenditures (spending) and revenue (taxes) levels influences employment, inflation and the flow of money into the economic system. Fiscal policy is very often utilized in conjunction with monetary policy, to control the direction of the economy and achieve economic goals. How fiscal policy works?

Fiscal policy is known as taxation and government spending, and plays a significant part in stabilization of economy. Expansionary fiscal policy like tax cuts and increased spending might stimulate a worn out economy and help return the same into a growth path. On the other hand, contractionary fiscal policy can control inflationary risk within an overheated economy. As fiscal policy has measurable and direct effects on consumer income and employment, it is on both sides of political and economic agendas. Fiscal policy can be divided into two kinds; taxation and government spending. Being a spender, the government can invest in public works such as highways, has the authority to create and pay public sector employments and offer transfer payments to the population like social security benefits. Being an imposer of tax, the government has the authority to impose taxes on corporations and individuals, effectively lowering or raising their disposable earning. Balancing act

Fiscal policy is stated to be expansionary or loose while government spending surpasses revenue. Here the fiscal budget is termed as deficit. When the total amount of deficit is significant, what is more significant often is the change in the surplus or deficit. Action on the part of the government to reduce taxes, enhance transfer payments or both,...
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