Describe the fi-WPS Office

Describe the fiscal policy (1 - 2 pages) (textbook).
The use of government expenditures and taxation in the influence of the economy is what is termed as
the fiscal policy. Fiscal policy is used by the government with an aim of reducing poverty and promoting
a strong and sustainable growth. Fiscal policy objectives and role gained prominence during the recent
world economic crisis where government got involved in jumpstarting growth support financial systems
and reduce the effect of the crisis to affected groups. Prominence of fiscal policy which is termed as a
policy tool has historically waned and waxed. Laissez-faire or an approach of limited government
prevailed in 1930. The government was pushed to playing a significant role by the policymakers due to
the great depression and crash. Currently nations have scaled back function and size of the government
and markets took a great role in allocating of goods and services. The period the world financial crisis
attacked many countries towards recession, many countries fiscal policy became more active to fight
with the situation.
Policy maker have two major tools on their disposal which includes fiscal policy and monetary policy ,
when they need to seek in order to influence the economy . Central Banks targets activity indirectly
through influencing the supply of money through adjustments to the purchase and sale of foreign
exchange and government securities, requirements of bank reserve and interest rates. The government
influences the economy by making changes in the taxes types and levels , the form and degree of
borrowing and the composition and the extent of spending. Governments influence the usage of
resources in the economy directly and indirectly. Below is the National income accounting basic
equation that is used to measure the gross domestic product and economy output.
GDP = C + I + G + NX.
GDP from the left side of the equation is the final services and goods value which is produced in the
economy. From the right side of the equation is the aggregate resources demand or spending which is
private consumption and is represented by letter (C), letter (I ) reprents private investment , the
government purchases of services and goods is represented by (G ) and (NX) represents exports minus
imports. ' Loose' or expansionary is a fiscal policy which makes aggregate demand increases indirectly
with an increment in government spending if there is decrease in demand through minimum spending.
Provision of goods and services such as primary education, public safety or highways, the objectives of
fiscal policy differ. Governments can focus on stabilization of macroeconomics in the short term ,for
instance, spending expansion, axes cutting , to help reduce external vulnerabilities, to an ailing economy
stimulation, taxes improvement to combat the inflation raise or slashing spending. The aim may be to
make poverty reduction with actions on side of supply or to fostering of sustainable growth in the longer
term in order to improve education and infrastructure. Even though the objectives are shared broadly
across the countries, there Is difference in the relative importance which depends on circumstances of
the country. In the short term , there could be priorities on reflection of the business cycle, a spike in
global fuel and food prices or natural disaster response. The drivers can be natural resources
endowment , levels of development or demographics. Poverty decrease desires can lead to country low
income to tilt the spending of primarily health care , while pension reforms may have a target of
looming cost which are long term in an advanced economy in relation to a population which is aging. In
countries that produce oil, policy makers may have a goal to make fiscal policy aligned better with bigger
developments of macroeconomic by ensuring procyclical spending is moderated by both refraining from
painful cuts when they decrease and limiting spending bursts when there is rise in oil prices .

Describe the fi-WPS Office

Uploaded by

Copyright:

Available Formats

Describe the fi-WPS Office

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Describe the fi-WPS Office

Uploaded by

Copyright:

Available Formats

Describe the fiscal policy (1 - 2 pages) (textbook).

You might also like