I always wondered how the government regulated taxation and public spending in order to stabilize the economy of the country. For the purpose, I searched for fiscal policies homework answers and found some really informative sources on the topic. Fiscal policy is the mechanism that governments follow all over the world to keep a tab on the movement of their economies.
Propagated by the eminent economist John Maynard Keynes, the concept of fiscal policy is paramount in today’s successful economies in the world. Keynesian policy as fiscal policy is sometimes termed as is employed by governments to affect national productivity by adjusting factors like taxation and public spending accordingly. The main outcomes of this policy are regulation of inflation, increase in employment and maintenance of value of currency.
Purpose
- Governments always aim at stimulating economic growth by increasing jobs, keeping taxes affordable for people and maintaining aggregate demand in market at healthy levels. Fiscal policy is the answer to these for the government.
- Citizens while paying taxes to the government are mostly bothered by inflation levels. Their spending and saving rates depend highly on the current inflation rates.Through fiscal policies, governments intend to maintain inflation levels to keep in check any extreme reactions in the market.
- Fiscal policies help finance authorities to stabilize economic growth by maintaining levels of aggregate demand and keeping businesses running. These policies are instrumental in avoiding insane levels of inflation or recession.
You will often read about the government tinkering with federal fiscal policies. It is the primary tool the government uses for regulating its public fund’s spending and deciding on the various taxation levels.Sources like fiscal policies homework answers help to understand the details and effects of fiscal policies on national economy.
One can relate fiscal policies to monetary policy in terms of the effect. While fiscal policies aimed at stabilizing the overall economic scenario of the country, monetary policy is implemented to keep the value of money healthy or to bring about any major change to the money circulation among the citizens.
Tools of fiscal policy
As you will find in discussions of fiscal policy homework answers and other sources, you can discern the fact that government makes uses of two procedures to maintain economy growth.
- Taxation – Various ways of taxation as in income, property, sales or business are employed by the government and regulated from time to time to achieve fiscal goals. Taxes are the federal authorities’ chief source of revenue.
In case they want business to thrive, and increase demand for goods and services in the market, tax rates are reduced. Low taxes mean people spend more on goods and services. In other words, aggregate demand in the market is increased.
Tax rates are sometimes increased to slow down economic activity. As taxes rise, people tend to spend less.
Changes in tax rates usually follow inflation rise or catastrophic recessions.
- Government spending–It comes naturally to authorities to induce money into the market sometimes to maintain healthy functioning of businesses.This comes in the form of subsidies of goods and services, welfare programs, public work projects, salary hikes and the likes.
Especially after recessions, government is bound to increase spending and help firms and businesses to function. The outcome is bringing output to normalcy and increase employment.
Fiscal policies homework answers also maintain that government spending influences the levels of demand for goods and services by stimulating growth.
It is inherent from fiscal policy definitions that the balance between taxation and government spending is the key to economic stability of a country. Economic growth is also a function of proper formulation of fiscal policies.
Depending on the way taxation and public spending are altered, fiscal policies can be classified into two types:
- Expansionary fiscal policy–Also termed as a loose policy, expansionary fiscal policy is highly appreciated by the public. Such a policy stimulates economic growth as government induces funds into businesses and the market while cutting down on taxes.The goal is to increases demand for goods and services.
Economists warn of unfavorable situations in the long run if government follows expansionary policies. As funding also entails increase in international borrowing rates of the government and hence federal debts also increase.This in turn builds fiscal burden on the authorities.
- Contractionary fiscal policy–It is imperative for the government sometimes to follow contractionary fiscal policy to curb inflation levels.This is also called a tight policy.
In conditions like this government increases taxation rates for income, investment, projects, sales and the likes. People tend to spend less on goods and services as taxes rise. Demand level also goes down. Economies in times follow tight policies to bring economic slowdown.
This type of fiscal policy is also followed by economies for increasing foreign investments. To know more, it is best that you consult fiscal policies homework answers.
All types of fiscal policies have the common goal of getting the best fiscal output for the people and the country in the long term. The Gross Domestic Level (GDP) of the economy is also a function of change in fiscal policy. A steady GDP is an indication of careful fiscal planning.
However, effects of fiscal policy are not uniform in the population. For instance, when the government decides to spend on construction of a new city it seems beneficial to large sections of population. Creation of jobs and services is the outcome. But when government spends on a particle research lab, only a few scientists and academic experts benefit from the initiative.
In all, fiscal policy is an important tool for governments to implement economic actions and monitor economic growth of the country. With fiscal policies homework answers you can get a detailed idea of this topic.