Question

1. Prepare an analysis (essay) of three minimum paragraphs (introduction, body and conclusion), letter Arial 12, double space, where he explains in his own words how through the appropriate fiscal policy according to the economic situation or the cycle economic growth of an economy the government achieves economic stability.

Answer 1

introduction- fiscal policy is one of the tools government uses to stabilise the economy if any instability condition occurs. government exercises its spending and borrowing as well as taxation capacity to stabilise the economy here. government expenditure, taxation, and governement borrowings are the tools of fiscal policy. fiscal policy is a weapon of government where as monetary policy is a weapon of central bank to employ to stabilise the economic situation of country.

body- by using fiscal policy government tries to stabilise the economic situation of the country. suppose there is inflation in the country which is increasing so here ti tackle inflation government will increase the tax rate so that the disposable income with public will reduce as well as the excess demand will be tackled and the infaltion rate will be reduced. by using expenditure policy also government can tackle inflation. here government will reduce the total expenditure or we can say investment in the economy, that way the total employment generation will decline and so is the income level, the demand will also decline so the inflation will reduce. on the other hand if there is deflation in the economy the government will decline the tax rate so that enough demand can be created in the market and government will increase expenditure so that employment and income increases and that way the economy will be out of depression.

conclusion- fiscal policy is an effective tool used by the government to eliminate the ups and downs in the economic situation. there are also situation where the fiscal policy is not much effective, like in open economic situation. but if bundled with monetary policy it gives good results.