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…
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
Another form of macroeconomic policy is fiscal policy, which involves the use of the Commonwealth Government’s budget in order to achieve the Government economic objectives. By varying the amount of government spending and revenue, the government can effectively alter the level of economic activity, which in turn will influence economic growth, inflation, unemployment and the external indicators of the economy.
Expansionary fiscal policy is a form of fiscal policy that involves decreasing taxes, increasing government expenditures or both in order to fight recessionary pressures. A decrease in taxes means that households have more disposal income to spend. Higher disposal income
A fiscal deficit is when a government's total expenditures exceed the tax revenues that it generates. A budget deficit can be cut by either reducing public expenditure or raising taxes. In this essay, I am going to analyse the benefits and costs of increasing tax rates to reduce fiscal deficits instead of cutting government expenditure.
The President of Bartavia wants to enact expansionary fiscal policy with the intention of manipulating inflation and unemployment. Although Bartavia is nearly employing all of its resources in production and extremely close to full employment level, the President is still concerned about the small percentage that is unemployed. Unemployment is the state of a person without a job or a reliable salary or income. Inflation and unemployment are characteristics that are closely monitored to indicate the economic performance of a country. As the economic advisor to the president, I would strongly advise against implementing this policy. Currently, the economy is not in a recession making the trade-offs associated with economic expansion counter intuitive. In addition, the Phillips Curve demonstrates the inverse relationship between inflation and unemployment, making the need for expansionary action unnecessary right now. Finally, Okun 's Law shows how this policy would effect Bartavia 's GDP via the sacrifice ratio. These three reasons show that the long-run consequences outweigh the short-run benefits of expansionary fiscal policy. Therefore, I implore the President to avoid implementing the expansionary policy.
A contractionary fiscal policy occurs when government spending is reduced either through from an increase in tax revenues or reduction in public spending and is used in periods in which it seeks slow the growth of aggregate demand. While an Expansionary Fiscal Policy implies an increase in public spending through increases in public spending or lower tax revenues. You can apply expansionary fiscal policies when seeking to increase aggregate demand.
The fiscal policy is one form of the expansionary policy, which comes in many form, In addition to transfer payments and rebates, the two major example of expansionary fiscal policy are increasing government spending and tax cuts. The goal of an expansionary fiscal policy is to improve the growth of the economy level of a country. Also to help the government reduce unemployment, and increase consumer demand and avoid an economic collapse.
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.
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
Taxation, the amount of money we pay every year and of course the government is a big spender has a lot of assets at its disposal to influence the economy. The government is a very large entity and controls a lot of money. Fiscal policy is more effective when trying to stimulate the economic growth rather than trying to slow down an economy that is overheating. The goal of fiscal policy is too accomplished by decreasing aggregate expenditures and aggregate demand through a decrease in government spending. Fiscal policy pros are; it can build up the operation electronic stabilizers. Well-timed fiscal stabilization together with automatic stabilizers can have an impact on the level of aggregate expenditure and activity in the economy. Fiscal policy can be picky by attempting specific category of the economy. For example, the government can be focused to concentrate education, housing, health or any specific industry area. Fiscal policy controls a spending tap. Fiscal policy can have a forceful effect if used in bankruptcy, because the government can open a spending tap to increase the level of aggregate
People would not seek for freedom unless, they do not have enough freedom, or they are
Aggregate spending refers to consumer purchases, business and housing investment, government purchases of goods and services and exports net of imports . This is the second way to add up GDP. The Federal Reserve uses monetary policy to stimulate aggregate demand by expanding money supply and lowering interest rates, which increases households and firms’ desired spending. Expansionary fiscal policy uses changes in taxes and government spending to affect overall spending.
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.
My partner and I decided to do our project on Communities in Schools Houston. We reached out to Spring Branch Elementary School on the West side of Houston. Here we interviewed with Mrs. Irene Alfaro, the designated CIS project manager, and one of her families. My experience over all was interesting.
Ever since a young age, there has been a deep interest into studying childhood. Based on the long term interest of childhood, this course is ideal to further my knowledge. With core modules including: the psychological and sociological perspectives of childhood, university will build and enhance my previous knowledge. This will provide an advanced understanding of: children’s education, social right issues and many aspects of childhood.
| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put