Question

• Fiscal policy refers to the changes in government’s choices regarding the overall level of government spending and taxes to influence the behavior of the economy. Fiscal policy can expand or contract aggregate demand. The government sometimes uses the fiscal policy instruments in an attempt to stabilize the economy. Under a recession, an expansionary fiscal policy is adopted, which involves lowering taxes and/or increasing government spending. In an overheated expansion with an inflationary pressure, a contractionary fiscal policy is utilized, which requires higher taxes and/or reduced government spending. Economists and policymakers disagree about how active the government should be in these fiscal policy efforts.
• What are the expansionary and contractionary fiscal policies? What are their policy instruments? How are they used to deal with the inflationary gap and recessionary gap? Which do you think is more appropriate today?
• Should the government balance its budget? If you think it should, what steps do you suggest that it take to balance its budget?
• What is the relationship between budget deficits and national (public) debt? Why the U.S. national debt has been increasing for decades?
• Should the tax laws be reformed to encourage saving? Do you think consumption tax is better than income tax?

Answer 1

What are the expansionary and contractionary fiscal policies?

Expansionary financial policy is basically a policy which extends or builds the stockpile of cash, though contractionary fiscal policy contracts (diminishes) the inventory of a nation's money.

Expansionary fiscal policy happens when the administration demonstrations to cut tax rates or increment government spending, moving the total interest bend to one side. Contractionary fiscal policy happens when government raises tax rates or cuts government spending, moving total interest to one side.

What are their policy instruments? How are they used to deal with the inflationary gap and recessionary gap? Which do you think is more appropriate today?

The apparatuses of fiscal policy are taxes, use, public debt and a country's budget. They comprise of changes in government incomes or paces of the tax structure to support or confine private uses on utilization and speculation.

Public consumption incorporate ordinary government uses, capital uses on public works, help uses, endowments of different sorts, move installments and standardized savings benefits.

Government consumption are income-making while taxes are basically income-lessening. The executives of public debt in many nations has likewise become a significant device of fiscal policy. It targets affecting total spending through changes in the holding of fluid resources.

During swelling, fiscal policy targets controlling unnecessary total spending, while at the same time during wretchedness it targets making up the inadequacy in viable interest for raising the economy from the profundities of sorrow. The accompanying contemplation might be noted in the appropriation of legitimate policy instruments.

Should the government balance its budget?

A budget is set up for each degree of government (from national to neighborhood) and considers public standardized savings commitments. The administration budget equalization can be separated into the essential parity and intrigue installments on collected government debt; the two together give the budget balance.

A balanced budget is a budget where incomes are equivalent to uses. In this way, neither a budget deficit nor a budget surplus exists. All the more for the most part, it is a budget that has no budget deficit, however might have a budget overflow.

A balanced budget would ensure people in the future against gathered debt.

If you think it should, what steps do you suggest that it take to balance its budget?

A budget cycle is the life of a budget from creation or readiness, to assessment. Most private companies don't utilize the expression "budget cycle" yet they utilize the procedure and experience every one of its four stages — arrangement, endorsement, execution and assessment.

What is the relationship between budget deficits and national (public) debt?

The Difference Between the Deficit and the Debt. A budget deficit happens when a nation, business, or an individual has spending that is more prominent than the income they get over a particular period—generally estimated as a year. When spending surpasses income—or income—it's called deficit spending.

Why the U.S. national debt has been increasing for decades?

As a rule, government debt increments because of government spending, and diminishes from tax or different receipts, the two of which change over the span of a fiscal year.

Should the tax laws be reformed to encourage saving?

High-income family units save a higher part of their income than low-income families. Any tax change that favors individuals who save will likewise will in general support individuals with high incomes.

Do you think consumption tax is better than income tax?

With everybody paying a similar tax rate on the necessities, those with lower incomes wind up spending a bigger bit of their general income and are hit more enthusiastically by utilization tax than by a dynamic income tax in which the tax rate increments as income levels increment