Instead, it has negative immediate effects on the taxes, the population’s incentive to invest and the private sector. It has been established that taxes must be increased to provide the government with more spending money. As a r... ... middle of paper ... ...onomic freedom of a country. Since a government’s income comes from taxes, countries with a high percentage of government spending tend to have lower freedom indexes. The best place to put money is into the hands of the people, who are able to spend it more effectively compared to the government.
Fiscal policy is the discretional changes to government expenditures or taxes to achieve national economic goals. When there are certain economic crises, the government has to make changes to how it spends government money to decrease deficit and eliminate inflationary and recessionary gaps by increasing or decreasing aggregate demand. Raising, or lowering, taxes are also a major factor in the fiscal policy. Raising taxes gives more money to the government, but decreases consumption, investment, and net exports by individuals, foreign country residents and firms (Text, p. 278 -279). The main goal of fiscal policy is to generate economic growth and maintain the nation’s stability.
To Reduce unemployment 4. To avoid large deficit on current account balance of payments Fiscal Policy The Fiscal Policy may be Expansionary or Deflationary. Currently the policy is expansionary. This involves increasing AD, therefore the government will increase spending and cut taxes. Lower taxes will increase consumers spending because they have more disposable income.
By budgeting for a deficit or surplus, the government will contract or expand the economy. e.g If the government needed to cut unemployment they would budget for a deficit so more money is injected and less money is taken from the economy by less taxes and higher expenditure raising employment. Monetary policy can also raise the level of economic activity. It controls the availability of money by influencing the level of interest rates. Lowering interest rates encourages people to spend and borrow while higher interest rates encourages people to save and not borrow.
Monetary policy is usually classified one of two ways, expansionary policy and contractionary policy. The goal of expansionary policy is increasing the total supply of money rapidly. The goal of contractionary policy is to increase total money supply slowly or shrink the total money supply. While expansionary policies are aimed to help unemployment, contractionary policy is aimed to stop deterioration of the values of assets. Monetary policy is used by the Federal Reserve also known as the “Fed”.
Define the role of the Central Bank and its influence on the market in the national economy. “Monetary policy is the process of supplying nominal money, look after the availability of money and cost of interest rate, which is controlled by the government or central bank, can be rather an expansionary policy, or a contractionary policy.” The expansionary policy is adopted to increase the whole amount of supply of money in the economy, and a contractionary policy is used to decrease the whole amount of nominal money supply. The central bank or government usually use the expansionary policy to fight against unemployment in a recession, where they lower the interest rate, so investment can grow. On the other hand the contractionary policy is the process of raising interest rate the aim is to fight inflation. The IS/LM model stands for Investment Saving / Liquidity preference.
Macroeconomic policy is a phrase used to describe actions taken by governments to manipulate the economy to influence the level of inflation and unemployment. Along with balance of payments and high stable economic growth, low inflation and high employment are two of the main four macroeconomic goals of the government. In practice, macroeconomic policies could be used to refer either to policies sought to influence aggregate supply or to policies that sought to influence aggregate demand. We will investigate aggregate supply and aggregate demand both in the long run and in the short run and show their effects on macroeconomic policy. In this graph we can see that as a result of a decrease in income taxes, aggregate demand will shift to the right from AD to AD1.
Demand-side economics is generally known as Keynesianism, named after the English economist John Maynard Keynes. He believed that governments should force interest rates down by printing money and lending it from the central bank at a discount. This would put more money in consumers\\ ' hands and encourage them to spend and consume more, thus creating an incentive for investment. This helped to solve some of the problems, but in the long run it is extremely inflationary, because with the increase of the money supply it becomes devalued. Keynesianism also calls for the government to spend more to try to help the economy grow.
This means that consumers will spend some of their income on consumption goods. This will give rise to further increase in expenditure. Ceteris paribus an initial rise in autonomous investment produces a more than proportionate rise in income. The rise in income will increase investment to meet the increase demand for output. The Keynesian also points out that as the economy is inconsistently unstable there is the need for government to intercede to make the economy stable when necessary.
This involves larger government purchases, a reduction in taxes, or an escalation in transfer payments. This fiscal policy substitute is intended to stimulate the economy by increasing aggregate expenditures and aggregate demand. It is primarily aimed at reducing unemployment, which is beneficial to the economy and the government. Government Goals & Strategies A key element of the Government's medium term fiscal strategy is to achieve budget surpluses, on average, over the medium term. This objective al... ... middle of paper ... ...n out the economy.