Question

what are the activities under a fiscal policies.

Answer 1

Fiscal Policy is government budget policy. It relates how the government changes its level of spending and the tax rates. Fiscal policy is considered as a sister to monetary policy which are the 2 ways that the government monitors and influences the economy.

Government affects public spending, inflation and employment by manipulating 2 key variables:

1.level of spending which is the amount of money that the government spends

2.tax rate which is the amount of money the government earns.

essentially government is affecting inflation and employment by manipulating its own cash inflows and outflows.

Expansion Fiscal Policy: used when the economy is slowing. The government reduces taxes and increases government spending.This in turn stimulates the economy reducing unemployment and increasing the level of economic activity such as sales and production

Contractionary Fiscal Policy: used when the government faces too much economic expansion which in turn causes high inflation. To slow the economy down the government imposes or raises taxes and this reduces income levels and causes consumption d investment to fall.