What is Fiscal Policy?
– Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation’s economy. Fiscal policy and Monetary policy go hand in hand with each other. Both are interdependent on each other. Before the Great Depression in the United States, the government’s approach to the economy was laissez faire. But following the Second World War, it was determined that the government had to take a proactive role in the economy to regulate unemployment, business cycles, inflation and the cost of money. By using a mixture of both monetary and fiscal policies (depending on the political orientations and the philosophies of those in power at a particular time, one policy may dominate over another), governments are able to control economic phenomena. Objectives of Fiscal Policy – 1. To achieve desirable price level: The stability of general prices is necessary for economic stability. The maintenance of a desirable price level has good effects on produc
Fiscal policy is a tool which is used by national governments to influence the direction of the economy, generally with the goal of promoting economic health and growth. Fiscal policies can be approached in a variety of ways, and they tend to vary as heads of state change, because different people have their own approaches to economic issues. Nations must strike a balance with their fiscal policies, so that they benefit the economy without being perceived as too interfering. The underlying component of fiscal policy is the government’s budget, which determines how much it will spend on various goods and services. The amount of the budget is usually tied to tax revenues and other sources of income for the government. In a nation with a neutral fiscal policy, the budget and the tax revenues are equal, while expansionary policies create a budget deficit, because the government is spending more than it takes in. Contractionary or tight policies, by contrast, create a surplus, as tax revenu
Fiscal policy is the means by which a government adjusts its levels of spending in order to monitor and influence a nation’s economy. It is the sister strategy to monetary policy with which a central bank influences a nation’s money supply. These two policies are used in various combinations in an effort to direct a country’s economic goals. Here we take a look at how fiscal policy works, how it must be monitored and how its implementation may affect different people in an economy. (For background on fiscal policies, see Formulating Monetary Policy.
