The paper operates mainly based on research questions which can be stated as follows: What is meant by fiscal policy? What are the instruments of fiscal policy? What are the current inflationary pressures being experienced in the Australian economy?…
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From the research it can be comprehended that fiscal policy refers to the means used by the government in spending and taxation to monitor or influence the economy. In a way, the government has to adjust its level of spending to influence the economy. This fiscal instrument is used by the government each year to manage its economy for the benefit of the citizens. The tax implications on the nation’s budget have different inferences to different groups of people within society. Fiscal policy focuses generally on the fiscal changes in government revenue and expenditure and their impact upon nation’s economy. Tax and expenditure are the basic fiscal policy instruments. However, the most potent fiscal instrument used by a government is taxation. Taxation has led to reduction of consumption, increases investments, and allow for the transfer of government resources to economic development. Taxation has impact to the general level of output by altering the incentives that institutions encounter. Taxation is imposed by government to cut the cost of governance and communal services. Taxation also facilitates resource re-allocation, and enhances the promotion through equitable wealth distribution, to enhance economic growth and development. This also ensures economic stability by correcting and controlling macroeconomic shocks which are both policy-induced or exogenous. Hence, we are able to understand the gap between the level of expenditure and taxation. When the government revenue is high, the liquidity trap increases in the money supply, which does not contribute to the improvement of economic growth due to downward pressure experienced in investment (because of insensitivity of interest rate compared to money supply) (Alesina & Tabellini 2005). Likewise, this may also occur when the government expenditure surpasses revenue. The most important factor to consider in such a case is not the level of the deficit but the change that accompanies the deficit. Fiscal policy is an important instrument that is used to monitor government’s economy due to its impact on GDP (Alesina & Tabellini 2005). Fiscal policy has been associated with the use of taxation and public expenditure to influence the level of economic activities. The implementation of fiscal policy is channeled through government’s budget. An important aspect of a public budget is its use as a tool in the management of a nation’s economy (Alesina & Tabellini 2005). During economic recession, the government plans for budget deficit which is often referred to as expansionary fiscal policy. In such a situation, taxes are reduced with a subsequent increase in the government expenditure, and during depression, or economic boom, the government may decide on a budget surplus to slow down the economy. This implies that through reduction in taxes, the purchasing power of individuals is enhanced and the cost of production of workers reduces, thereby improving their scale of operations in the business cycle. On the other hand, increases in public expenditure when effectively used can lead into improved developments in the nation’s infrastructure. Consequently, there is an increase in general welfare and places the economy on the path of growth. This explains the first impact of fiscal policy on improving the demands for goods and services. The aggregate demands make it an important instrument for a government’s economic stabilization. Fiscal growth has affects the output level and has implications on a country’s savings. Thus, in fiscal expansion, the government will be forced to reduce savings, which is equivalent to a budget surplus. The reduction in fiscal deficits may lead to increase in domestic production. Furthermore, it may lead to stable exchange rate that should be pursued as means of controlling inflation in a nation. 2. With the aid of a diagram, show and explain how fiscal policy can be used to shift
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3). Consistent with the framework, the United Kingdom’s fiscal objective over the medium term is to ensure that spending and taxation are distributed fairly across generations (HM Treasury 2008, p. 3). Over the short term, however, the UK government’s fiscal policy supports UK monetary policy so “automatic stabilizers” can smoothen the path of the economy (HM Treasury 2008, p.
Other economists advocate for use of monetary policy due to some problems with fiscal policy such as the crowding out effect. Britain is one of the countries that make use of fiscal policy to run the economy. This policy is used to stimulate aggregate demand especially when the economy is at a recession.
The United State’s financial reputation on an international level 6. A domestic automotive manufacturing (exporter) 7. An Italian clothing company (importer) 8. GDP Tax payers The deficit, surplus and debt of United States have a significant effect on the taxpayers.
The fiscal policy indicates how the government attempts to realize revenue, spending and managing the deficit. The macroeconomic goals of a government include high levels of employment and business activity, stability in prices and distribution of wealth and promotion of economic growth.
The tools have been described hereunder. Reduction in Taxes-The governments can opt for reducing the amount of taxes that are imposed on various products. This would not only help in capturing the entire business market, but will also enable effective demand stimulation at large.
My firm is an example of successful bailout in case of tax cuts for 95% of all households including services rendered (Shiller, 2008). If my firm had folded like it was the case in the 2008 economic crash, general effect on the economy and loss of jobs would have turned out to be stunning.
Fiscal policy can exert an influence on the overall economic fortunes of a national economy primarily through the manipulation of spending programs and taxes. This forms the crux of the two warring overall perspectives on government and economy that are
The stimulus package was a fiscal policy strategy that was used to jumpstart the economy. This package included bank bailouts, tax rebate checks, and other stopgap measures to stop the slowdown in the economy. The cost of this controversial package
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