Fiscal Policy and Monetary Policy

781 WordsJan 31, 20183 Pages
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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