Question

What Is Fiscal Policy? Full word page simple summary

Answer 1

Q- What Is Fiscal Policy? Full word page simple summary

Answer- Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply. It refers to a government's spending and taxation policies intended to maintain economic stability, which is indicated by levels of unemployment, interest rates, prices and economic growth.

In economics , fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure (spending) to influence a country's economy. The use of government revenues and expenditures to influence macroeconomic variables developed as a result of the Great Depression, when the previous laissez-faire approach to economic management became unpopular. Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorized that government changes in the levels of taxation and government spending influences aggregate demand and the level of economic activity.

Fiscal policy is an important tool for managing the economy because of its ability to affect the total amount of output produced that is, gross domestic product. If the economy is at full employment, by contrast, a fiscal expansion will have more effect on prices and less impact on total output.

Governments use fiscal policy to influence the level of aggregate demand in the economy, so that certain economic goals can be achieved:

• Price stability
• Full employment
• Economic growth

Fiscal Policy Advantages- This involves increasing spending or purchases and lowering taxes. Tax cuts, for example, can mean people have more disposable income, which should lead to increased demand for goods and services.The two major examples of expansionary fiscal policy are tax cuts and increased government spending. Both of these policies are intended to increase aggregate demand while contributing to deficits or drawing down of budget surpluses

Objective- The objective of fiscal policy is to maintain the condition of full employment, economic stability and to stabilize the rate of growth. For an under-developed economy, the main purpose of fiscal policy is to accelerate the rate of capital formation and investment.