Question

Give a detailed description of the Fiscal Policy providing:

1. Definition

2. Examples

3. Conponents/ Assets

4. Objectives/Aims

5. Advantages and Disadvantages

6. The relation between Fiscal Policy and Economic Growth

7. Tools of the fiscal policy

Thank you so much

Answer 1

1. Fiscal policy refers to the spending and tax policies of a government designed to preserve economic stability, demonstrated by levels of unemployment, interest rates, inflation and economic growth.

2. As an example of fiscal policy, a government may impose higher taxes to curb price inflation, which is correlated with high levels of consumer spending, resulting in lower levels of disposable revenue. Likewise, in times of recession a government may engage in public spending to increase the cash flow of an economy.

3. Fiscal policy has two main components: Expansionary and contractionary. Expansionary fiscal policy, intended to boost the economy, is most frequently used during a recession, high unemployment times, or other short business cycle periods. It means spending more money on the government, lowering the taxes, or both. The goal is to bring more money into consumers 'hands so they spend more and stimulate the economy.

4. 1. Full Employment 2. Stable price 3. Economic growth rate rising 4. Optimum Resource Allocation 5. Equitable income and asset distribution

5. Reduction of unemployment-The government should implement an expansionary fiscal policy when unemployment is high. This means rising investment or sales, and reducing taxes. For example, tax cuts will mean that people have more discretionary income which will result in increased demand for goods and services. The private sector must increase production in order to satisfy the rising demand, generating more job opportunities in the process. Conflict of Objectives — A conflict of objectives that occur when the government uses a combination of expansionary and contractionary fiscal policies. The national government will sell bonds to the public if it needs to raise more funds to boost its spending and promote economic growth. Because government bonds give purchasers a variety of benefits, they will be heavily purchased by individuals and businesses.

6.  For underdeveloped countries, the primary goal of fiscal policy is to mobilize capital in both the private and public sectors. The national income and per capita income are usually very low because of the low savings rate. Thus, the governments of these countries drive the rate of investment and capital accumulation through forced savings, which in turn accelerates the pace of economic growth.

This is also following the strategy of expected public sector spending. Private investment has the beneficial effect of rising productivity, curtailing conspicuous consumption and investing in unproductive channels may help to check the economy's inflationary trend.

7. Taxation is the first method. It includes employment, savings, land, and sales capital gains. Taxes include the Government's revenue. The downside to taxation is that whatever is taxed has less money to spend on itself, which is why taxation are controversial.

The second resource is government spending — which includes subsidies, welfare services, initiatives at public works, and government salaries. Whoever receives the funds would have to invest more money, which will boost demand and economic growth.