Chapter 17.2, Problem 1R

To determine

To evaluatethe significance of fiscal policy and circular flow of income and output

Explanation of Solution

Fiscal policy refers to the utilization of spending of the government and policies of tax to control economic circumstances like aggregate demand for goods and services, inflation, wages, and development of the economy. Fiscal policy is primarily concentrated on the Philosophies of the economist JMK, who concluded that economic recessions are due to a deficit in consumer consumption and the factors of aggregate demand for business investment.

Theconcept of circular flow illustrates how the money flows through society. Money flows as salaries from producers to workers, and as payment for goods flows back to producers. In short, an economy is an interminable revolving money flow. Money is removed or leaked by different means just as money is pumped into the economy. Government-imposed taxes (T) limit the flow of revenue. Often a leakage is money paid to foreign firms for imports (M).

Economics Concept Introduction

Introduction: Stabilization policy is a technique implemented by a government or its central bank to sustain a stable level of economic growth and gradual changes in prices. Maintaining a policy of stabilization involves tracking the market cycle and modifying benchmark interest rates as required to manage sudden increases in demand.