Expansionary Fiscal Policy

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1. Expansionary Fiscal Policy
Expansionary fiscal policy results in a reduction of taxes and increased government spending and
therefore increasing the demand level in an economy. The institution of expansionary fiscal policy
raises disposable income through reduction of taxes in the economy and this improves the rate of
consumption. Therefore, tax reduction is an appropriate expansionary fiscal policy that can be
deployed to help an economy that could be undergoing a recession (DeLong & Summers, 2012).
Consequently, tax reduction could be a vital government tool for increasing the Gross Domestic
Product. Low taxes encourage individuals to work hard and thus boosting the county's GDP. Income
taxes have an impact on collective demand. An expansionary fiscal policy reduces
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3. Fiscal Policies And The Fiscal Policy
The fiscal policy is the means by which the government of a country adjusts its spending levels and
the tax rates that are applied so as to monitor and influence a country's economy. On the general
scale, there are two types of fiscal policies. These are the contractionary and the expansionary fiscal
policy. The expansionary policy is used mostly to spur economic growth in the times of low periods
in the business years (Langdana, F. K. p.34) The contractionary policy on the other hand seeks to
reduce government spending so as to stabilize the economy.
There are in this form, tools that are used to implement these policies. Among these tools are,
government spending and the taxation. The government spending can be adjusted in such a way ...
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This may be a move that pushes away potential investors in the economy, or worse, the existing
ones.
For the past few months, the country has suffered some form of recession, of which the experts
project that the country is still recovering. This is thanks to the application of the fiscal policies that
sought to strengthen the currency and reduce unemployment.
Section 2
The monetary policy is basically an economic strategy and plan chosen by a country's government
in deciding the expansion or contraction of the country's money–supply. In some cases, however, the
definition runs far beyond the confines of the economic field. The monetary policy in the United
States is usually implemented by the Federal Reserve.
Basically, in the monetary policy, there are two broad categories. These are the expansionary and
contractionary. On the general view, the expansionary policy functions to increase the money
supply. This is mostly with the view of reducing the unemployment levels in the country. On the
other hand, the contractionary monetary policy serves to slow the rate at which the money supply
grows. This is usually in an effort to reduce inflation rates in the country. For these policies to work,
however, they must be implemented. For these, there are generally about three ways of
implementing the policies. These are termed as tools and they basically include the open market
operations, the discount rate and the reserve requirements(Langdana, F. K. p.67)
The Open
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5. Fiscal and Monetary Policy
Fiscal and Monetary Policy
Governments can use both fiscal and monetary policies to move the economy from a recessionary or
expansionary gap. Fiscal policies include increased or decreased government spending, increased or
decreased taxation; on the other hand monetary policies include increased or decreased money
supply, changes in interest rate, etc.
One of the tools of fiscal policy is government spending, the initial equilibrium is represented by the
point E. With increased government spending, the IS curve shifts to the right and new equilibrium is
reached at point E', with increased level of output and higher interest rate.
Monetary policy can help the economy back to the long run equilibrium. Let the initial equilibrium
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However, in the long run this trade off might not exist as In the long run, expected inflation adjusts
to changes in actual inflation, and the short–run Phillips curve shifts. As a result, the long–run
Phillips curve is vertical at the natural rate of
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7. GDP and Fiscal Policy Essay
The gross domestic product (GDP) is an essential component of measuring business cycles. The
most universal description of a recession is two uninterrupted quarterly declines within the GDP,
which is basically the totality of every good and service that a country produces (Shenk, 2008). This
description may be deemed as one–dimensional due to the fact that GDP is a measurement of the
national economic performance based on a sole economic statistic. By examining just one
component of the economic activities, an assessment is determined based on the entire economy.
Therefore, GDP is a critical gauge. Nonetheless, it has the capacity to foster a misleading
conclusion. A more intricate characterization of a recession has been stated by the ... Show more
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Appropriate government bodies make the determination of national fiscal policies. Occasionally
there are involuntary economic establishments and every now and then a discretionary fiscal policy
is necessary. These elements are established by the government bodies, which are predominately the
President or Congress. While economic activities rise and fall; both taxes and fiscal expenditures
involuntarily act in response in ways that even out the economy. For instance, during an economic
deceleration, the government's spending on benefits to the unemployed elevates automatically while
the rate of unemployment increases. This spending increase is automatic in that it does not entail
unequivocal proceedings by the President or Congress. Likewise, payments of tax decline
automatically as the economy enters a recession (Shenk, 2008). In addition to the fiscal policy's
automatic reactions, governments have the capacity to establish discretionary fiscal modifications in
order to combat an economic downturn. For instance, the stimulus package and bailouts in which
Congress recently approved is a great case in point of the discretionary fiscal policy.
Fiscal policies may potentially have a remarkable impact on both the production and employment of
a country. Expansionary fiscal policy seeks to enhance both an economy's demand and output. They
do this through enhanced governmental expenditures, or through the reductions of tax which
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9. Essay on Fiscal Policy
Fiscal Policy can be explained in many ways, for example. Fiscal policy is the use of the
government budget to affect an economy. When the government decides on the taxes that it collects,
the transfer payments it gives out, or the goods and services that it purchases, it is engaging in fiscal
policy. The primary economic impact of any change in the government budget is felt by particular
groups–a tax cut for families with children, for example, raises the disposable income of such
families. Discussions of fiscal policy, however, usually focus on the effect of changes in the
government budget on the overall economy–on such macroeconomic variables as GNP and
unemployment and inflation.
Fiscal Policy also can ... Show more content on Helpwriting.net ...
This policy involves increasing government spending and cutting taxes, in order to spur economic
output. But if the government decides they need to do the opposite the government may adopt
concretionary fiscal policy. This involves a reduction in government spending and an increase in
taxes when faced with an overheating economy. But these actions, may have other effects in the
economy. For instance, and expansionary fiscal policy may lead to the crowding out of investment.
Like every other government controlled organization there is a group of people who are control of
Fiscal Policy. There is a Council of Economics. These men are called Council of Economic
Advisors. In the Council of Advisors there are three people. There is a Chairmen and two members.
Even though there are not a lot of people in this council it is a very important council. These three
men are very influential to the President. The Council of Economic Advisors haves five main jobs to
do.
First off the Council must assist and advise the President in the preparation of the Economic Report.
Secondly they must gather timely and authoritative information concerning economic developments
and economic trends, both current and prospective and must analyze and interpret such information.
Thirdly they must appraise the various programs and activities of the Federal Government in
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11. Fiscal Policy And Monetary Policy
Nowadays, economic growth and stability is the goal that governments aim to achieve. There are
two main ways to achieve this purpose: fiscal policy and monetary policy. Monetary policy is a kind
of macroeconomic policy lead by the central bank. Expansionary monetary policies can help boost
the economy but it will cause inflation. There are two approaches to control money supply; there are
price and quantity. Price represents interest rates and quantity means amount of money quantity.
After financial crisis, U.S. interest rates already reached a low point. As a result, the only effective
way to boost the economy was by increasing money supply. In other words, the U.S. government
would printed money and bought bonds in the open market. New funds would entered the open
market to boost economy, that is called "Quantitative Easing" monetary. Concern the U.S. dollar
was the most powerful currency in the world, U.S. monetary policy could affect the whole world.
There were three rounds of Quantitative Easing monetary in the U.S. In QE1, the Federal Reserve
(Fed) purchased 1.25 trillion dollars of residential mortgage–backed securities, $ 300 billion long–
term Treasury bonds and $ 175 billion agency debt purchases between December 2008 and March
2010.The U.S government injected capital to major banks in order to reduce the impact of the
financial crisis. The Federal Reserve purchased $600 billion of longer–term Treasury securities in
QE2 during the period of November 2010 to June
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13. Effectiveness of Fiscal Policy as a Stabilization Tool
The Effectiveness of Fiscal Policy as Stabilization Policy
Alan J. Auerbach University of California, Berkeley July 2005
This paper was presented at the Bank of Korea International Conference, The Effectiveness of
Stabilization Policies, Seoul, May 2005. I am grateful to my discussants, Takatoshi Ito and Chung
Mo Koo, and other conference participants for comments on an earlier draft.
I. Introduction
Perspectives among economists on the usefulness of fiscal policy as a device for macroeconomic
management have moved back and forth over the years. Belief in the active use of the tools of fiscal
policy may have reached a relative peak sometime during the 1960s or early 1970s, and practice
followed theory. In the United States, ... Show more content on Helpwriting.net ...
For example, one might wish to announce that the ITC would be eliminated in the future, to spur
investment today, but once the future arrived, and today's investment had already taken place,
2
it might no longer be optimal to repeal the credit. Hence, in addition to the policy lags that made
the implementation of policy difficult, one was confronted with two major additional obstacles: first,
to figure out how to evaluate potential policies and, second, to recognize that agents react not to
policies that are announced, but to policies that are expected. To these three hurdles, policy lags,
model instability, and dynamic inconsistency, the literature added several others. There was, of
course, the problem that estimates of behavioral responses to fiscal policy were just that – estimates
of parameters, not the parameters themselves. Even with a stable model, i.e., one based on
exogenous taste and technology parameters, uncertainty about model parameters militated against
activism, as shown by Brainard (1967). Moreover, determining the "right" behavioral model is a
difficult task, given that all models involve simplifying assumptions, and some models of household
and firm decisions suggested that fiscal policy changes would be ineffective. For example, there has
been a long debate in the investment literature about the importance of the user cost of capital as a
determinant of investment, relating to such
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15. Macroeconomics: The Fiscal Policy
1. Fiscal policy is defined as "the use of government spending and taxation to influence the
economy" (Weil, 2008). All government spending influences the economy in some way, but the
amount of spending and where that spending is directed will have different types of effects on the
health of the economy. The same can also be said for taxation who is taxed and how creates
incentives that guide the course of the economy.
By contrast, monetary policy is "the actions undertaken by a central bank"¦to influence the
availability and cost of money and credit to help promote national economic goals" (FOMC, 2012).
Thus, the objective of monetary policy is to provide the means for economic activity to take place,
and guide the level of economic activity in the country, whereas fiscal policy relates to specific
spending choices on the part of government.
2. Keynes pointed about that fiscal policy can be used to stabilize an economy. The basic idea is that
because government spending contributes to the economy, changing the level of government
spending can have an effect on the health of the economy. Hayek argued that government will
inherently be less efficient with respect to economic planning and resource distribution. Note that
this is not a direct refutation of Keynes, because Keynes does not argue that government is the best
at resource allocation, only that government intervention is sometimes beneficial during difficult
economic periods. Keynes is, if nothing else, less
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17. Fiscal and Monetary Policy
It is the role of the federal government therefore to keep inflation low as well as keeping
unemployment rate down. Philips curve gives the probability of having both a low unemployment
and inflation hence providing the stakeholders in the sector in the short run a tradeoff between
unemployment and inflation (Mark & Asmaa, 2012). Unemployment can be kept under control by
the government while at the same time allowing inflation OR to keep controlling prices and not
controlling unemployment. This compromise between the two is shown as a contra–relation between
inflation and unemployment. In the long run, the government can only afford to play around with
inflation while having zero control over unemployment. At this natural rate of unemployment the
curve will be vertical.
According to what we are given, the rate of inflation is at an acceptable level of 2 % while
unemployment rate is exceptionally high. The only way to counter this is by reducing the tax rates
and increasing the government expenditure on both services and goods which is an expansionary
policy. The reason for this policy is to first raise the budget deficit. For consumption and spending
not to drop the fed can choose to increase the money supply to keep it high.
The common tools for expansionary monetary policy are the open market purchase of securities and
lowering of the FED landing rate. Because of increased availability of money the aggregate supply
will not keep up with rise in demand hence leading to
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19. Demand Management and Fiscal Policy Essay
Demand Management and Fiscal Policy
Fiscal policy is the manipulation of aggregate demand using taxation and or government spending.
The government tends to make most of its fiscal decisions in the annual budget, usually announced
in March of each year.
However, there are a number of problems in using fiscal policy to control aggregate demand – one
of the most significant is the problem of time–lags.
1. Time Lags
Many aspects of fiscal policy have a delayed effect on aggregate demand. Changing the fiscal stance
can take some time to achieve. For example switching to an expansionary fiscal policy through
increased government spending can take some time before the full multiplied effects are felt on the
economy. If the ... Show more content on Helpwriting.net ...
How much reduced spending is necessary to choke off aggregate demand and bring inflation down
from 2.8 % to 2.5 % ? The economy is complex, and fiscal policy in reality is such a blunt
instrument – fine tuning is impossible. This could easily lead to an expansionary fiscal policy over
inflating the economy and thus generating demand–pull inflation. The government would then need
to immediately switch from a go to a stop policy. This change of fiscal stance again only helps to
introduce more uncertainty into the economy eroding business confidence.
Alternatively, if a contractionary fiscal policy overshoots, this could lead to unexpectedly large
demand–deficient unemployment. The government would again be forced into a quick reversal of
policy switching this time from a stop and adopting a go policy.
It can be concluded that at best fiscal policy allows 'coarse not fine tuning' 3. Financing
Expansionary Fiscal Policy
Operating reflationary policies involve running budget deficits ie the government is spending more
than it is receiving in taxation revenue.
This means that the government is having to borrow more money, increasing the national debt ( this
is the total accumulated debt of the government ).

20. In extreme cases, if the government keeps on borrowing excessively, to ensure that it can still
receive further loaned funds from the private sector, the government may be forced to
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22. Example Of Fiscal Policy
Research
Fiscal stance
Since the budget 2017–2018 will cause a deficit of $29.4 billion, which is decreased by $8.2 billion
compares to the budget 2016–2017[1], the fiscal stance the government is adopting tends to be
contractionary. To return to surplus within four years and create a surplus of $7.4 billion in 2020–
2021, government adopts the contractionary policy to reduce the deficit and increase the surplus.
And another reason for adopting contractionary policy is to raise the economic growth from 2.75%
(2017–18) to 3.0% (2018–19). The federal government also starts to pay attention to globalization,
small business owners and areas where technological change happens. The four main things this
budget choose to focus on are: growing ... Show more content on Helpwriting.net ...
In addition, government will expense $33.8 billion in education, $30.1 billion in defence and so on.
[3] Total expenses for 2017–18 are expected to be an increase of 3.0 per cent on estimated expenses
in 2016–17 at $464.3 billion.[5]
[3] [3] [5]
Revenue in 2017–18
An increasing taxation is introduced in budget 2017–18. A new six–basis point levy on the big
banks' liabilities has been started up which will secure $6.2 billion over the budget. This extra
revenue is supposed to support budget repairment and save money expenses in budget. Besides, the
government plans to post a higher taxation with multinationals in order to crackdown on
multinationals not paying their fair share of tax. The personal income tax rates remains the same as
2016–17 and the Medicare levy will rise from 2% to 2.50% in 2019.[4] And there will be a tax cut
for small business owners and first home buyers as an encouragement. Tax revenue will rise by
more than $20 billion mainly due to the increased taxation from multinationals and major banks.
Total revenues for 2017–18 are supposed to bring an increase of 7.8 per cent on evaluated revenue
in 2016–17 at $444.4 billion.[5]This rising tax revenue can help the government reach the surplus in
2020–21.
[5] [4]
Proposed government reform package
In 2017–18, the federal government will put downward pressure on rising housing costs. In order to
reach a greater housing supply and get more
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24. Expansionary Fiscal Policy
1. The government has two tools of expansionary fiscal policy which are expansionary and
contractionary. The difference in the two tools is that by taking the expansionary route the
government is opting to stimulate the economy. Expansionary is most often the path taken during
times of high unemployment or during a recession. The government cuts taxes, rebates as well as
government spending. Lastly, another option the government may choose to take is called the
contractionary fiscal policy this means that the government decides to decrease the amount of
money such as increasing taxes and reduce the amount of money the government is spending. 2. The
long–term implications of expansionary fiscal policy can lead to increasing demands of goods,
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26. Government Fiscal Policy
US Federal Gov. and Fiscal Policy Paper
In this paper, I will tell you about the United States' Federal Government and how they enact their
countries Fiscal Policy. I will also speak of the times where the economy can not help themselves
what the government must do. Even though I will also tell you whether or not I think the fiscal
policy is well executed and who Ben Bernanke and John Maynard Keynes is, while further elaborate
about discretionary fiscal policy, and speak of the times when the government must step in to
improve the economy when the economy can not help itself. In my opinion, our country as a whole
is improving with its economic growth, price stability, and full employment.
I wanted to point out page 748 that broadcasts ... Show more content on Helpwriting.net ...
The unemployment rate has been higher than most countries. Looking back seven years starting at
2009 to 2015, the rate has declined as well as escalated. I will be discussing the Month of October
throughout the years because the Bureau of Labor Statistics only has their 2015 fact until October
and has not published for the month of November. According to the Bureau of Labor and Statistics
as of October 2009 the unemployment rate was at a high of 10.0 percent,2010 9.4 percent, 2011 8.8
percent, 2012 7.8 percent, 2013 7.2, 2014 5.7, and 2015 5.0. Based on the facts comparing 2009 to
2015 the unemployment rate has literally dropped in half. The lowest our unemployment rate has
ever been was 2.5 percent in May and June of the year 1953. The next thing I asked myself did we
achieve full Price stability. First you need to know what price stability mean, price stability
according to the Glossary on page G–22, is a steadiness of the price level from one period to the
next. Keeping a zero or the low annual inflation rate, this is also called Price–Level Stability.
According to our Federal Chair Janet Yellen who recently took Ben Bernanke's place, she stated in
her second public speech that for the first time in nearly a decade the United states economy will be
approaching maximum employment and price stability. There still are many questions that I have yet
to answer, has the US Government done its job and achieved full
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28. Fiscal Policy And Monetary Policy
Fiscal Policy vs Monetary Policy
Fiscal policy is a way for the government to control the economy financially. The Federal
Government sometimes partakes in actions to stimulate the economy. Fiscal Policy focuses on
changing government spending, controlling inflation, encouraging economic growth, and to reach
full employment.
Monetary policy is a policy the Federal Reserve Board enforces which consists of changes in the
money supply which influences the interest rates in the economy. This can help control the overall
level of spending in the economy. Monetary Policy focuses on achieving and maintaining price–
level stability, full employment, and economic growth.
There are four different types of fiscal policy including Expansionary, Discretionary, Non–
discretionary, and Contractionary. All of these types of Fiscal Policy were created to accomplish
different things. Expansionary Fiscal Policy manipulates growth in the economy based off of
reduced government spending, rebates, and tax cuts. Discretionary Fiscal Policy is open to new
changes in government spending and taxes. Non–discretionary Fiscal Policy cannot be changed and
the policy is already set, for example, the government agreement to pay the troops that are already
on the job. And lastly, Contractionary Policy is a policy where taxes are raised and the government
reduces spending.
Fiscal Policy has a few flaws including timing issues. The timing issues occur for a couple different
reasons such as the legislative
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30. Economics: Fiscal Policy
Fiscal policy is a system used for the economy that helps the fluctuation of financial goals by the
alterations of government expenditures or taxes. There are two different fiscal policies used debating
on the growth or decline of the economy. First is expansionary fiscal policy that is used to help
boost the economy when it is in a decline like the recession our nation just witnessed along with
prior years. Which in this case the government can decrease interest rates, and use tax incentives to
help boost the financial system and private spending. Second is contractionary fiscal policy that is
put into effect when the economy is at an incline and possible inflation is taking place. In which
instead of decreasing interest rates they could raise ... Show more content on Helpwriting.net ...
With the disaster of the recession and the outcome made a drastic drop in the GDP that includes
investment, government spending and net exports. Decision making from the government has been a
crucial aspect on the recovery of the United States. Through this time expansionary policies were
put into effect, interest rates were reduced; tax cuts and breaks were put into place. Individuals
received earned income incentives along with an increase in child credit; and corporate taxes that
were decreased are just a few examples. Comparing to prior years expansionary policies were higher
through our recent recession then before. There is argument whether or not those fixes have made a
breakthrough for the economics of the country. Today the economy is slowly making a comeback.
As jobs are opening, and housing is getting back on track. The fiscal drag is expected to make a
positive impact, federal fiscal movements of contractionary policy is anticipated to continue
improving our economy over the next few years. Some downfalls that can appear with fiscal policies
are crowding out, time lags, and national debt. First, crowding out when expansionary fiscal policy
causes a decrease in planned investments or planned consumption in the private sector. This usually
creates a rise in interest rates (Miller 2012). Second, lag phase when the economy is in a decline or
increase economically there is information that is gathered before a policy can be implemented.
Than we cannot forget the time, it takes once the policy is put into effect to know whether it has
made a difference in the economics for the country. Thirdly, national debt when our economy is at a
decrease government spending is at an increase. The United States is trillions of dollars in debt
borrowing from
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32. Fiscal Policies In Canada
Fiscal policies as described by Evie Adomait are any and all budgetary matters that relate to the
government, also referred to as the Department of Finance in these specific cases (p146). As we all
know, our current Prime Minster is Liberal and so the government's fiscal policies will be focused
more on investing and subsidizing social services. Prime Minister Trudeau has expressed to Canada
and other global leaders that he has no intentions of balancing the budget and urges others to do the
same. The Canadian government is focusing heavily on increasing government spending and as a
result, we are seeing an accumulation of debt that continues to grow at an exponential rate. Before I
proceed, it is important to make clear that I myself am fiscally ... Show more content on
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As it stands the government is spending far beyond its means and is running excessive deficits that
will have a huge impact on the economy for years to come. After a single year we have already
witnessed the large decline in value of the Canadian dollar. The government should not be
expanding their means through fiscal policies that promote such debt. This places a burden on the
taxpayers of the country and the economy as a whole. My argument stands from the fact that the
government receives its income from the personal income of its residents and corporations.
Taxpayers elect a government on the basis that they will represent the needs of the people and an
important factor in this election process includes the proposed tax rates of each political
government. When a political government sets the tax rate it is recorded in legislation and signifies
that those funds should suffice. When a government begins to overspend and suffer from a deficit
they are forced to increase tax rates; our current government is a
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34. Fiscal Policies And The Fiscal Policy
Before we talk about ways to assess fiscal policy of an economy, I would like to describe what we
mean by fiscal policies and why it is important for an economy. Fiscal policy is the use of
government revenues and expenditure to influence growth of an economy. Fiscal policies that
increase demand in an economy are called as expansionary policy whereas those which reduce
demand are called as contractionary fiscal policies. These policies are most effective in a fixed
exchange rate regime with perfect capital mobility while they are less effective if the exchange rate
is flexible. These policies are used to tackle cyclicality, external account imbalances and inflationary
problems. In the following sections, I will discuss describe various roles of fiscal policy, how the
fiscal policies should be designed, how to assess its sustainability. The essay will end with a brief
policy recommendation on fiscal policies which should be generally followed by the governments.
The government uses fiscal policy to achieve its short term and long term objectives. Short run
objective mainly includes macroeconomic stabilization by responding to various domestic and
international shocks such as natural disasters, terms of trade shock, financial crisis etc., while in the
long run the government goals can be to eradicate poverty, improve infrastructure or have structural
changes in labor market. Although countries broadly share these objective, but the priorities may
change as per country's need
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36. Macroeconomic Policy : Monetary And Fiscal Policy
Macroeconomic Policy: Monetary & Fiscal Policy Monetary policy is used by the Fed to regulate
the supply of money and credit in the economy. The purpose of monetary policy is to promote
maximum employment, maintain the price of goods, and to control long–term interest rates to
increase economic growth. Right now, monetary policy and fiscal policy are accommodating. At this
point, the inflation rate is too low at 0.1 percent, which indicates some uncertainty in the economy.
Inflation rates that are too low or too high may cause deflation. Deflation is the sustained decline in
the average of all prices of goods and services (Miller, 2016, p.157). Deflation can also lead to
recession due to limitation of spending. If prices never change or are predicted to drop, then
consumers tend to wait to purchase products in order to receive the lowest price possible (The
Associate Press, 2014). Lower inflation rates will impact the sale of blood glucose meters because
people will delay spending disposable income on meters and strips.
Fiscal policy is used by the government to adjust spending and tax rates in order to influence the
economy. Fiscal policy can either expand or contract economic growth. There are two types of fiscal
policy; contractionary and expansionary. The United States is operating under expansionary fiscal
policy n response to the recession of 2007. The characteristics of expansionary policy includes an
increase in government spending and a reduction in taxation.
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38. Fiscal Policy And Fiscal Policies
Macroeconomic objectives vary widely, from reversing a recession to containing inflation,
achieving full employment to increasing economic output. Fiscal policy is one of the tools often
used to realise these goals and create financial stability. There are two ways in which fiscal policy
can be implemented, either a contractionary fiscal policy, or an expansionary fiscal policy, which I
will explore in this assignment.
The aim of an expansionary fiscal policy is to raise expenditure, whereby economic output and
household income will also increase. This is done by altering the flow of government expenditure
and tax, namely increasing government expenditure and decreasing tax.
Increasing government expenditure triggers a series of ... Show more content on Helpwriting.net ...
Thus, the original government expenditure boost launches a cycle of incremental economic output
and household income.
The second part of expansionary fiscal policy, which may be used in conjunction with increasing
government expenditure or alone, is decreasing taxes. By lowering taxes people have to pay, such as
income tax, workers keep more of their money and therefore have more disposable income, which
allows them to increase consumption. As a consequence, spending goes up and firms resort
employing more people to increase production to a level that satisfies the higher demand. Once
again, the effects of the multiplier can be seen as increased economic output launches a cycle where
people have even more disposable income, and spending rises further still.
In essence, expansionary fiscal policy can be used to raise income, stimulate spending and increase
levels of production in a given economy, be it open or closed. Gradually, as unemployment falls, this
sequence allows the economy to move towards full employment.
As with most theories, expansionary fiscal policy does indeed have its criticisms and downfalls. If a
given household's expenditure were to be higher than the household's income, it would spell
financial trouble unless the extra spending can be funded somehow. Similarly, at a time of
expansionary fiscal policy, a government is spending more on goods and services, whilst tax
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40. Fiscal Policy and Monetary Policy
Fiscal policy is the governments spending policies, which influences the conditions economy as a
whole. With this policy, regulators can improve unemployment rates; stabilize business cycles,
control inflation, and interest rates to control the economy. The government adjusts the spending and
tax rates to influence the nation's economy. The idea is to find the balance between public spending
and changing tax rates, by increasing or lowering taxes may cause the risk of causing inflation to
rise. If the economy had slowed down, unemployment will go up, so consumer spending will go
down and businesses are not making enough profit. If the government decides to raise the economy
by decreasing tax, it will give the consumers more money to spend while it is increasing the form of
buying services from building roads or schools. The government will create jobs and wages that will
help the economy by paying for such services, it will then impel money into the economy by
decreasing taxation and increase government spending, which is known as "pump priming." Fewer
taxes to pay and more money for the economy will make consumer demands for good and services
to increase. If inflation is too strong then the economy may need to slowdown, In that kind of
situation the government can use this policy to increase taxes to decrease money of the economy.
This policy also can order a reduction in government spending and thereby reduce the money in
circulation. But with the fiscal policy the
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42. Analysis of Discretionary Fiscal Policy Essay
During discretionary fiscal policy the government spends and taxes to change the economy during a
particular problem. Both Congress and the president have to take action when they agree that the
economy is in need. When they do this they are trying to simulate the economy during a time of
recession. Economists thought discretionary fiscal policy would eliminate the instability of the
recession, however most had given up on the idea by 1980.
The most noticeable discretionary fiscal policy is the discretionary budget. These are the
expenditures calculated in the United States budget that are within the appropriations bills. These are
negotiated between Congress and the president each year. This includes almost all the spending in
the ... Show more content on Helpwriting.net ...
There are three types of lags recognition lag, administrative lag, and operational lag. From those
lags you must determine if they were an attribute to the failure. Each lag takes time to notice.
Recognition lag measures the state of the economy. This is a resultant from GDP because its not
measured neither quick enough nor easily found. During administrative lag the president and
Congress agree on a course of action. Two legislative bodies must agree and then agree with the
president. Congress doesn't solve problems without any disagreement, and eventually over a period
of time they will agree. The last type of lag is operational lag, this takes time to notice the full
impact of a government program or tax change to have the effect on the economy. This offers the
final block and even if both the president, and Congress agree on time it still takes time for
discretionary fiscal policy to have an effect. The next part of the three fold is that failures can be a
result from political motivations that overwhelm some economic reasons. Finally, the third part of
the three–fold deals with the immediate counter–effects of the aggregate demand and aggregate
supply, which this could either eliminate the positive intent of the policies either partially or
completely. Policy makers noticed in the 1970s that discretionary fiscal policy couldn't stabilize the
economy. "The lags were just too important to ignore, and the recession to be recognized, laws to
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44. Fiscal Policy And Monetary Policy
We the government have to find a better way to spend the economic money better to improve our
situation. Looking at the two expansionary which is fiscal and monetary policy to find out a way to
find the economic. It is macroeconomic policy that pursues to enlarge the money supply to boost
economic growth or combat inflation. One of the form is fiscal policy of expansionary policy, which
comes in the method of tax cuts, discounts and increased government spending. Expansionary
policies do come from central banks, which focus on cumulative the money supply in the economy.
Now let look at the break down of expansionary policy which deal with the fiscal policy and
monetary policy. The U.S. Federal Reserve pays expansionary policies whenever it ... Show more
content on Helpwriting.net ...
In the book it say: Discretionary fiscal policy is the intentional use of taxing or government
spending to affect the level of output, employment, and prices. Even if governments change their
levels of spending or taxes for other reasons, policy makers are very conscious of the effects these
actions will have on output, employment, and the price level. Most economists in the classical
tradition consider fiscal policy to be of limited benefit, sometimes even harmful (Amacher, 2012).
Fiscal policy can be used in direction to both stimulate an inactive economy or to slow down an
economy that is developing at a rate that is getting out of control, which have a potential to lead to
inflation or advantage. Fiscal policy openly touches the aggregate demand of an economy.
Reminiscence that aggregate demand is the entire number of final goods and services in an
economy, which contain consumption, investment, government spending, and net exports. For
example: Aggregate Demand = Consumption + Investment + Government Spending + Net Exports.
Fiscal policy has a result on each of these groups. There are two types of fiscal policy which are
expansionary and contractionary.
When our economy is in a recession, expansionary fiscal policy is in effect. Normally this kind of
fiscal policy consequences in enlarged government spending and/or inferior taxes. A recession
consequences in a recessionary hole which mean that aggregate
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46. Walmart Fiscal Policy
Fiscal policy is a means by which our government regulates its level of spending and tax rates to
observe and impact a country's economy. It is a budget strategy through which a central bank
influences the nation's money source. The positive and negative consequences of fiscal policy
include shortage, surplus, and debt. All have fluctuating effects on how individuals view the
economy, make subjective decisions, and react to unsettling changes. Individuals should consider
focusing on making independent decisions that provide short and long–term profits in uncertain
periods. The decisions made by individuals have lasting effects on the economy when spending
increases and reinvestments in the economy are established.
"Under current law, ... Show more content on Helpwriting.net ...
Over the course of the next 2 years Wal–Mart should be able to live up to third goals and changes,
Seeing that the odds are in their favor as far as their economical standpoint is concerned. Of course
it is important for the organization to understand that there will be some issues that may arise. I
personally believe that Wal–Mart will not have many issues in the areas of economic weaknesses.
Wal–Mart is a company that has a great deal of strengths. They sell their products at very affordable
prices as well as very convenient for costumers. Also With the new rise of minimum wage as well as
the opportunities more jobs will be created which will encourage Wal–Mart to expand and generate
more money throughout the organization. Along with better job opportunities within their stores I
think the some other strengths Wal–Mart would develop more opportunities in their corporate
offices as
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48. Fomc Fiscal Policy
The government has the power to slow down economic growth when necessary. It can effect this by
pursuing its fiscal policy objectives by adjusting taxes as well as fiscal spending. Itincreases the rate
of income tax and reduces government spending. By so doing, it collects more income, which
reduces the disposable income of citizens. With less income to spend and invest, there are less
economic activities and employment. This leads to slow economic growth, which stabilizes an
overheated economy.
The stabilization is mostly necessary during times of inflation. If the nature is demand push,
whereby the prices are increasing due to increase in demand of commodities, increase in tax and
decrease in government spending will reduce the pressure ... Show more content on Helpwriting.net
...
It can expand its supply network by increasing its global presence. Starbucks has great opportunities
in growing economies. It should create coffee houses in places such as India and China, where it has
invested modestly now. Starbucks can also broaden its target market by offering more products.
They could perhaps increase the number of stores that sell beer and alcohol, which could
considerably increase their sales. The economic play of a state is a significant area. This is why the
U.S government takes numerous steps to regulate the economy. The president, congress and the
Federal Reserve all take various measures to ensure that the economy is stable. They implement
various tools to stimulate or contract the economy. The FOMC ensures that it executes the
regulatory mandate set by the congress to achieve policy goals. The economy of a state influences
the success of investment within it. The success of multinational companies such as Starbucks relies
on the stability of various countries where it
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50. Fiscal Policy Vs Monetary Policy
Stimulating, keeping balance, and influencing our economy are only a few things our nation strives
for when it comes to regulating our economy. Two of the powerful tools our government uses in
getting our countries economy in the right direction are fiscal and monetary policy. Both of these
policies are extremely effective in their own ways and when used together can only help an
economy more than harm it. Taking a closer look at the policies individually, the fiscal policy seems
to have a bigger role in regulating the economy. Through government management the fiscal policy
seems to hold up its part of the deal and betters the economy in the long run.
One of the influential policies that our nation uses is monetary policy. Monetary policy ... Show
more content on Helpwriting.net ...
The policy objectives are to set base interest rates, or creating easy money/influencing the supply of
money. For example, in the United States, the Federal Reserve Bank is tasked with achieving
maximum employment and price stability at the same time. One of the tools that the Federal
Reserve board uses is purchasing and/or selling U.S. government bonds in the market which
ultimately influences the supply of money. If a nation is in a recession, the monetary policy may put
in place in order to regulate the economy by selling government bonds for newly created money.
When it comes to the monetary there are several pros and cons that come hand in hand. A few pros
is that there is a small amount of inflation which is good because it allows investment in the future
and workers will expect higher wages, also in using the monetary policy the banks can act quickly,
even though the currency weakens this can result In a boost in exports. That boost allows products
to be less expensive for foreigners to buy. However, there are many cons that outweigh the pros. For
example, tools such as increasing interest rates affect the economy as a whole, not really considering
the fact that only a part of the country needs the stimulus. States with higher unemployment may
need
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52. The Expansionary Fiscal Policy And The Monetary Policy
When the Federal government has to find ways to regain any money lost they lean on the
expansionary Fiscal policy and the monetary policy to regain money into the economy. Whether, a
change in taxes or even government spending. Even to the three major tools of the expansionary
monetary policy to focus on. In the first part of this paper, I will discuss the expansionary fiscal
policy and how the Federal government was involved and the changes that needed to be made to
taxes, government spending. The second part of this paper, I will discuss the monetary policy and
the tools the Federal Reserve used when under this policy. The expansionary fiscal policy was out to
kick start the economy, and the expansionary monetary policy was out to change interest rate, and
influence money supply. When discussing these two policies you have to think about one aspect
when will it ever stop? Will a policy always have to be part of the economy to help the government
one way or another? In the first part of this paper, I will discuss the effect that the expansionary
fiscal policy had on the Federal government and the impact on these changes the expansionary fiscal
policy when it came to taxes and Government spending. Let's start by talking about how taxes had
to have necessary changes when it came to expansionary fiscal policy. You can think of taxes as
being taxes that come from consumer spending, taxes on checks or even taxes on things you own.
When thinking of what taxes affect the only
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54. Contractionary Fiscal Policy
Fiscal Policy is one of the two aspects that are utilized by the Federal Government to influence the
economy. Fiscal, which is signified as "financial" is a policy that can cause alternating changes in
governmental expenses and custom gatherings, in order to achieve the aspects of full employment
and non inflationary inner outputs within the economy. During the year of 2007, a crisis within some
of the major financial institutes off the nation occurred that resulted in the Great Recession, that
reveal in the following year of 2008 the Fiscal Policy was conveyed as expansionary. Expansionary
Fiscal Policy Expansionary Fiscal Policy is utilized when the economy is experiencing a recession.
In order to keep the economic sustained, the government would increase governmental spending
and, also lower taxes, and with these occurrences it will increase the demand which can raise the
gross domestic product. The occurring combination of governmental spending and tax reductions
could increase the demand as well as, spending within the economy. Contractionary Fiscal Policy
Contractionary Fiscal Policy is ... Show more content on Helpwriting.net ...
During the late year of 2007, the economy was experiencing a recession. In the early year of 2008,
Congress worked to pass an economic sustain package, however an increase of gross domestic
product concluded in an automatic decrease in tax proceedings that occurred during the recession.
Obama administrations and congress acted upon the American Recovery and Reinvestment Act of
2009, which acted as an emergency aid for financial institutions, which included increases in
education, health care as well as, infrastructure; with the proposition of flooding the economy in
order to achieve the boosting of demand and
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56. Fiscal Policy
Introduction
The economy fluctuations in today's world have become one of the most important factors in
determining the direction of an economy growth. Non–stable economy can harm and slow the
development and growing rate of a nation. There are many tools to stabilize the economy and reduce
the frequency and the altitude of economic fluctuations. Among these tools are the fiscal policy and
monetary policy. This report discusses the fiscal policy and why the governments use this too to
stabilize the economy and encounter the economic fluctuations.
Definition
Fiscal policy is a macroeconomic tool used by the government through the control of taxation and
government spending in an effort to affect the business cycle and to achieve ... Show more content
on Helpwriting.net ...
At E¬¬1 the economy is under its full employment equilibrium Y¬¬F¬. The expansionary policy
stimulates the AD1 and restores the equilibrium again at E2.
In the times of inflation, the economy operates above its full potential output and the government
tries to raise taxes. When the government raises taxes, consumers are forced to put a larger portion
of their income toward taxes, and thus disposable income falls. In terms of the economy as a whole,
this is represented by Y = C(Y – T) + I + G + NX where an increase in T results in a decrease in Y,
holding all other variables fixed. When the government reduces government spending, the recipients
of government spending, the populace, have less disposable income. In terms of the economy as
whole, this is represented by Y = C(Y – T) + I + G + NX where a decrease in G results in a decrease
in Y. Contractionary fiscal policy makes the populace less wealthy and decreases output, or national
income.
The contractionary fiscal policy tends to bring down the total income to its equilibrium. This is
shown in the following figure that illustrates how the contractionary policy affects the aggregate
demand curve.
Figure 2: The effect of the contractionary fiscal policy on aggregate demand
During the inflation times, the strong demand such as AD¬1 will temporarily lead to an output rate
beyond the economy's long–run potential YF. Contractionary fiscal policy could
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58. Fiscal Policy as an Economic Stabilization Measure
FISCAL POLICY AS AN ECONOMIC STABILIZATION MEASURE
Fiscal Policy refers to the various decisions undertaken by the government regarding public
expenditures and revenue. There are a large number of sub–policies that are encompassed by the
fiscal system. But all the policies can be broadly categorized as being either 'Public Expenditure' or
'Public Revenue'. It can be said that the fiscal policy is a direct government intervention in the
economic processes of an economy.
The fiscal policy is very objective in nature, since it creates decisions that can be uniformly applied
to the entire economy or to a segment of the economy. The fiscal policy is considered to be more
direct than the monetary policy in its impact on the economy. ... Show more content on
Helpwriting.net ...
However, it should be noted that the increase in the interest rate has brought about a disincentive for
the private sector within the economy. The private investors are dissuaded from borrowing the
investible funds lying with the financial system, since the ROI is too high and so unattractive for
them. Had the shifting of the IS curve not caused the interest rate to rise (i.e., the ROI was fixed at
OI1), then given the new IS situation, the economy would have been at equilibrium at E3 and the
income would have risen to OY3. Thus, we see that an expansionary fiscal policy has reduced the
possibility of creating income up to OY3 – hence, Y2Y3 represents the amount of additional income
lost i.e., the 'Crowding–out Effect'.
Showing the COE with the help of AD function:
The fiscal policy, with a constant money supply, is less expansionary than it would have been if the
money supply were increased to keep the ROIs constant as income expanded. Hence, the fall in
income by Y1Y2 is the crowding out effect.
Showing the COE with the help of the PPF:
But as soon as an expansionary fiscal policy causes the government spending to increase to g2, the
private sector's spending falls to h2. Therefore, amh2h1 is indicative of the extent of the crowding
out effect of the fiscal policy.
It is possible to
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60. Two Of The Most Implemented Policies Government Use To...
Introduction
According to a article by Rich Karlgaard from forbes. During the great recession. U.S economy was
performing better then expected and was growing. From 2008 to 2010, U.S GDP is projected at 14.3
trillion, 14.2 trillion, 14.6 trillion. So how did this actually happen? Carl Schramm, who heads
America's top entrepreneurial think tank, the Kauffman Foundation, explain in a interview with the
author:
"The single most important contributor to a nation's economic growth is the number of startups that
grow to a billion dollars in revenue within 20 years."
The statement made by Carl Schramm suggested that the increase of start ups, is the most important
contributor to a nation economic growth. (Karlgraard,2010)
Economic growth is an ... Show more content on Helpwriting.net ...
And they can adopt to do a their government debts is consider small by international standard, with
a federal debt of less then 10% of the GDP. This compares favourably with debt ratio of U.S at
70%.But we can also see from the table that as fiscal stimulus was implemented during the period,
government debt increases. A substainable fiscal policy requires the debt to not increase relatively to
the increment of GDP. Therefore, government have to increase the taxes and decrease their spending
in order to decrease their public debts.
From the article, we can conclude the weakness in fiscal policy. There is no doubt that fiscal policy
do contribute to economic growth but it is only for short run, We must understand that increase in
government expenditures will end with a increase in tax.
Monetary Policy
Monetary policy, is how government manage their money supply to steer the economy .
Government will either buy or sell bonds to increase money supply or decrease money supply
respectively.Similar to Fiscal policy, there's expansionary monetary policy and contradictary
monetary policy. (Mofatt, Not Published)
Expansionary Monetary policy, is where government increase the money supply in the market by
buying bond. By doing so, the market interest rate will decrease, which in turn, cause the cost of
borrowing
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62. 1979 Fiscal Policy
It is easy to point out that prior to 1979 the US government should have done more to avoid such a
heavy reliance on foreign oil. Fiscal policy, for years, was not properly structured to enable energy
independence. During the Carter years, policies regarding energy use reduction primarily involved
lowering the legal highway speed limit and by encouraging people to use less energy to cool and
heat their buildings. Carter's proposals for a broader energy program were constantly rejected by
Congress. In 1979, Carter shook up his cabinet by bringing G. William Miller on board as Secretary
of the Treasury and naming Paul Volcker the Chairman of the Federal Reserve Board. Carter now
had an economic team that understood that getting inflation under ... Show more content on
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He avoided several proposed spending increases during his term. This spending avoidance was his
position despite what the economic activity was indicating. During both economic contractions and
expansions, Carter maintained a fairly tight fiscal budget. This limited government spending
position seemed to be coupled with a limited free market approach. Some of Carter's actions, such
as his deregulating of the energy and transportation sectors and the reduction of the top capital gains
tax rate, emphasized his efforts to achieve an economic balance. His reduction of the top capital
gains tax rate from a high of 98% to 28% set up a major economic rebound in the mid–1980s. He
frequently argued that regulations were limiting competition and increasing costs. All of which, it
could be argued, should have been achieved earlier in his term. However, the delay may have been
caused by having poor advisors in his earlier years. Because of President Carter's tight fiscal
budgeting, the deficit as a percentage of GDP never reached 3%. Future Presidents would easily
cross that line – going much
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64. Monetary Policy And Fiscal Policy
The United States is best described as a mixed economy. A mixed economy is when the government
is not in charge of the economy, but is still majorly involved in economic decisions. The government
plays a critical role in providing economic conditions where the marketplace can function
effectively. Any decisions made are in order to either maintain the market or stabilize the economy
during a financial crisis. Monetary policy and fiscal policy are two tools by which government uses
to guide the economy. Sometimes the economy is challenged with both inflation and unemployment
at high rates. Macroeconomics breaks down the entire economy and the issues affecting it, including
inflation, unemployment, economic growth, and monetary and fiscal ... Show more content on
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Expansionary fiscal policy is when taxes are cut and government spending is increased. Lower taxes
will increase disposable income for consumers. The increase in disposable income will lead to a
higher level of consumer spending. In theory the more money that consumers spend, the higher the
possibility for economic growth. Tax cuts will also lead to an increase in aggregate demand, which
is the total demand for goods and services in the economy. Expansionary fiscal policy involves the
government attempts to increase aggregate demand. This would involve higher government
spending and/or lower taxes. In theory, higher government spending will increase aggregate demand
and will lead to higher economic growth. Lower taxes should increase the income of consumers,
which would lead to consumer spending to rise. The expansionary fiscal policy will also lead to an
increase in the amount in the government's budget deficit. This would be a potential problem of
expansionary fiscal policy since higher borrowing could push up interest rates on government debt
and cause markets to fear default. The impact that the expansionary fiscal policy would have
depends on many factors. In theory, this lower tax should boost the spending, but that is not always
the case. One of the major issues for this policy is the state of the
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66. Neutral Fiscal Policy
When Neutral fiscal policy is in equilibrium, it is usually undertaken. Expansionary policy involves
the government exceeding taxes and is undertaken during a recession. Contractionary policy
happens when the government costs are lower than the tax revenue and is also undertaken during
recession.
Capital: The money someone put into the stock market or bank.
Labor: The people input manufacturing process is labor.
Land: Land includes all the natural and physical resources including silver, iron, gold, and oil.
Entrepreneurship: A person or people who want to supply the product to the market to make some
profit.
Stock Market is basically a stock exchange. An example of a stock market is the NASDAQ founded
in 1971.
An open outcry is a financial
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68. Fiscal Policy And Fiscal Policies
Fiscal Policy
Brooks (2012) defines that fiscal policy is adjusting government revenue and spending in order to
influence the direction of the economy and meet the economic goals of the country. The two main
tools in fiscal policy are taxes and expenditure. Fiscal policy is set by the government and
parliament and often used a combination with monetary policy, which set by Reserve Bank of
Australia as an example. Furthermore, this essay discusses the Australian government fiscal policies
during the period of 2010–2015 by looking on the government budget and explains all the answer
from all the questions listed below.
1. Has the government been following an expansionary or contractionary fiscal policy between 2010
and 2015?
Expansionary fiscal policy is made from increasing government spending and/or tax cut, thus, it
increases government budget deficit or reduces budget surplus in order to move the economy out of
recession or boost economic growth (Forde 2016). Contractionary is decreasing government
spending and/or increase taxes, thus, it decreases government budget deficit or increases budget
surplus, in order to control demand–pull inflation and slow down economic growth (Forde 2016).
To begin with, we have to classify each of government budgets during last five years period to
summarise the answer. Look at figure (a) below. Started from 2010–2011, the government has a
budget deficit of $47.5 million where they increase in spending such as for national security,
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70. Fiscal Policy And Fiscal Policies
Fiscal Policy
Generally fiscal policy is the set of strategies that government implements or plans to use with
certain activities such as the collection of revenues and taxes and expenditure that can influence the
overall economic condition of the nation. A well written or planned fiscal policy can lead the nation
to the steady path of the strong economy, increase employment and also maintains healthy inflation.
Every country needs fiscal policy as fiscal policy plays a vital role on monitoring the pattern of the
flow of nation's expenditure to the economy and also the nation's revenue generated from the
economy. It also helps to stimulate the economic growth during the period of economic recession.
The main aim of the fiscal policy is to maintain a steady fiscal growth with respect to both higher
and lower economic cycle. There is an intimate relationship between fiscal and monetary policy
though these both entities are conducted for different purposes. These are basically not the
alternative but the complement to each other. Fiscal policy always supports monetary policy during
the time of recession such as Global Financial Crisis of 2008.Many countries enacted lots of
stimulus plans related to fiscal policy in order to cope with the Global Financial Crisis of 2008.
Among those India also adopted many different new techniques of fiscal policy in order to survive
during the Global Financial Crisis of 2008.
India is a federal democratic country located in South Asia region
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72. Fiscal and Monetary Policies
Fiscal and Monetary Policies
Charles T. Sheridan
Student ID: 4290575
ECON 102
American Military University
Dr. John Theodore
Economies everywhere in the world have fluctuations, there Gross Domestic Product (GDP) is
either growing (economic boom) or it is not producing enough and falls into a recession. In a
recession, an economy's GDP suffers two consecutive quarters of negative growth. Personal
consumption, government spending and the amount a country imports and exports measure GDP
(Amadeo, nd) while Rittenberg and Tregarthen state that personal consumption (C), gross private
domestic investment (I), government purchases (G) and net exports (Xn) make up GDP (2009). The
most recent recession in the U. S. economy was in ... Show more content on Helpwriting.net ...
However, government purchases will lead to a greater impact on the aggregate demand curve than a
change in income taxes or transfers (Rittenberg and Tregarthen, 2009), The basic objectives of
monetary policy is to "help promote national economic goals of economic growth, full employment,
and price stability by influencing interest rates, the supply of money and credit" (Rittenberg and
Tregarthen, 2009). Monetary policy has a cause–effect chain that can help expand money supplies
by lowering interest rates to motivate consumers to borrow money (Rittenberg & Tregarthen,
2009). The extra money in the economy increases jobs. To help with monetary policy, the US
government created the Federal Reserve (or the Fed). The Fed can raise or lower interest rates to
help stimulate employment and help stabilize price (Rittenberg & Tregarthen, 2009). The Fed
has three policy tools; setting the reserve requirement for banks (usually 10%), operating the
discount window (where private banks can borrow money from the government to increase their
reserves or reduce their liabilities), and conduct open–market operations (where the Feds buy bonds
to create new reserves) (Rittenberg & Tregarthen, 2009). According to Rittenberg and
Tregarthen, these purchases of bonds could possibly increase the money supply (2009). When
private banks have extra reserves, they earn
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74. Fiscal Policy And Fiscal Policies
Introduction
China's economy has been declining and economy analysts expect the world's second largest
economy to further decline. The council has commented regarding the economic situation that China
"needs more active fiscal policy" (CNBC) in order to have its economy back on the reasonable
range. Fiscal policy affects aggregate demand depending on the government's spending and taxation.
Thus, if the government decides to make changes in its taxation such as discounting corporate taxes,
the aggregate demand curve will shift. In addition to that, money spent on public services and
welfares will increase government spending which will affect aggregate demand as well.
Economic Analysis
Fiscal Policy
"Fiscal policy is the changes in federal ... Show more content on Helpwriting.net ...
The article regarding China's economy relates to discretionary fiscal policy specifically associated
with expansionary policy. Expansionary policy is where "governments use spending and taxing
powers to promote stable and sustainable growth" (Horton and El–Ganainy). Hence, China's cabinet
has planned to increase the government's spending where "more money will be spent on public
services to improve livelihoods and steady the economy" (CNBC).
Aggregate Demand and Aggregate Supply
Aggregate demand (AD) shows the "relationship between the price level and the quantity of real
GDP demanded". Whereas aggregate supply (AS) shows the "relationship between the price level
and the quantity of real GDP supplied in the short run" (Hubbard and O 'Brien, 2015). Fiscal policy
relates with the AD/AS model where different fiscal policies will cause the aggregate demand curve
to shift differently. The ability of expansionary policy with the increase of the government's
spending is that it could increase aggregate demand and prevent it from having a negative shift.
China's cabinet has decided that it will increase its expense on public services and infrastructure
constructions. Therefore, the policy that will be carry out is expansionary where based on Diagram
1, aggregate demand will increase with its curve shifting to the right from AD1 to AD2 due to
increase in government spending. As a result, the will cause the market to have a
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76. Fiscal Policy And Monetary Policy
The government in times of economic recession has responsibility to take action, engaging in
expansionary economic policies is the action my paper will discuss. The types of economic
expansion include Fiscal Policy, and Monetary Policy, the expansion of the two policies allows the
government to adjust taxes, and government spending. Harry Truman once quoted "It's a recession
when your neighbor loses his job: it's a depression when you lose yours." (The economy
perspective, the banker 's banker. (1998, Jul 29). When recession hits the first party that is blamed is
the government, so there ability to take action is a sign of them taking responsibility. Government
action is necessary to right the recession ship, expanding Fiscal, and Monetary Policy may very well
be the answer.
The first topic of discussion is Expansionary Fiscal Policy and how the government uses the policy
to affect the economy. Expansionary Fiscal Policy is a type of policy which includes increase in
government purchases, a supple decline in taxes, while making an increase in transfer payments.
These changes are designed to close the recessionary gap, while increasing economic stimulus
packages and they aim to decrease unemployment. The government will introduce Expansionary
Fiscal Policy during anticipation of contractions in the business–cycle. Increase in government
spending will increase aggregate demand, and aggregate expenditures. The down side to
Expansionary Fiscal Policy leads to budget deficits,
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78. Monetary Policy And Fiscal Policy
The Federal Government uses the monetary policy and fiscal policy to establish and determine the
best way to manage the economy. Monetary policy is used by the Federal Reserve to manage the
money supply. This includes credit, cash, check, and money market mutual funds, with loans, bonds,
and mortgages being the most important. This policy can be broken into two categories: monetary
restraint and monetary expansion. As it states, one is trying to restrain the market while the other
expresses expanding the market. With control over the money supply, the two categories for
monetary policy can manage the inflation of the economy. After this has been complete, the
unemployment rate is a second objective that is handled and reduced. Fiscal policy is used as
reference to the tax and spending policies, and is handled completely by the Federal Government
rather than the independent agency of the Federal Reserve. In comparison to the monetary policy,
there is also two sub categories of expansion and restriction. This paper will explain why I believe
the monetary restraint policy is the best option for maintaining a stable economy through the use of
controlled spending by limiting the access consumers have to money, its reliability in being the
solution to a growing problem, and the benefits we see from past occasions. Using the monetary
restraint policy will require the Federal Reserve to increase the interest rate nation–wide requiring
citizens to decrease spending and borrowing.
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