StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Fiscal Policy - Essay Example

Comments (0) Cite this document
Summary
Name of student: Topic: Lecturer: Date of Presentation: Introduction The government uses various policies to ensure the economy is running properly. The Keynesian economists advocate the use of fiscal policy to ensure the economy achieves desired output and employment…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.2% of users find it useful
Fiscal Policy Essay
Read TextPreview

Extract of sample "Fiscal Policy"

Download file to see previous pages However, fiscal policy is more effective in the short-run as in the long-run there is stabilizing economic forces that ensure the output moves back to its potential (Taylor, 2009). The fiscal policy involves increasing government spending or reducing taxes to stimulate aggregate demand or vice versa to reduce demand. Some countries focus on the supply-side of the economy to ensure a more permanent change. The paper will discuss the effects of fiscal policy on the economy. Taxation Expansionary fiscal policy involves cutting taxes and increasing government spending. Taxation is a source of revenue for the government to fund expenditure. If it decides to cut taxes, then it runs a budget deficit. A reduction in income tax leaves individuals with more disposable income to spend on consumption thus raising aggregate demand. As demand increases, the producers are forced to produce more and employ more factors of production. This leads to more output and employment and increased economic activity (Sexton, 2008). However, income tax can only be adjusted annually on the budget hence it is difficult to apply this policy. It also depends on whether the households use extra income for consumption and not saving since savings is a withdrawal from the circular flow of income. The government can also increase transfers such as unemployment insurance, and in turn disposable income leading to more consumption (Riley, 2006). Lower taxes and increased transfers act as an incentive for workers to add more hours and increase productivity hence increased output and employment. Increasing taxes acts as a disincentive to work. If workers get less income by the end of the day compared to what they were getting, they would be dissatisfied and would not be willing to work extra hours. However, some would put more hours to cover the lost income but would lose their productivity due to low morale. There would also be low labour supply as not many individuals would be willing to work leading to low output in the economy (Taylor, 2009). Indirect taxes can also be used to discourage consumption especially of demerit goods. A government can impose duty on alcohol and cigarettes leading to lower demand for the items hence low output and employment. Tax incentives such as Subsidies to producers on the other hand lead to decline in cost of production hence reduced prices and consequently increased demand. Increased demand leads to production of more output hence increased economic activity (Creel & Sawyer, 2009). A decline in corporation tax attracts domestic and foreign investors’ hence increased fixed capital spending on technology, labour skills, infrastructure (Mankiw, 2008). Tax allowance on research and development encourages innovation and more business start-up thus increased employment and consequently increased aggregate demand. Government Spending Fiscal policy entails increasing government spending but a contractionary fiscal policy involves reducing government spending to curb excess demand. A government spends on infrastructure, and provision of essential services such as education and health. This adds directly to the aggregate demand of the economy hence stimulating economic activity. The government can finance its spending by borrowing from abroad or domestic market as raising taxes can lead to further weakening of the economy due to reduced demand. Improved infrastructure leads to more investments due to opening up of new markets and entry ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Fiscal Policy Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1428692-how-does-fiscal-policy-influence-the-economydoes
(Fiscal Policy Essay Example | Topics and Well Written Essays - 1000 Words)
https://studentshare.org/macro-microeconomics/1428692-how-does-fiscal-policy-influence-the-economydoes.
“Fiscal Policy Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1428692-how-does-fiscal-policy-influence-the-economydoes.
  • Cited: 1 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Fiscal Policy Essay

The Determinants of Trade Policy Preferences in the UK

...The Determinants of Trade Policy Preferences in the UK Introduction What are the factors that determine trade policy? This question has become a rising apprehension with changes happening in the trade policy in terms of free trade as well as trade barriers. It is not just sufficient to examine the trade policy as well as its effects on the nation so as to consider whether the trade policy is preferable or not. Such a question is to be answered by eschewing the region or country centered theories & take into consideration the individual preferences towards the trade policy. The study has a focus on two things. One is that, the factor type dominates the sector of service or employment and there by becomes an important determinant throwing...
10 Pages(2500 words)Essay

United States Foreign Policy from 1945-1991

American Presidents presiding over some key events in history, such as the Cuban Missile Crisis, The Cold War, The Vietnam War, etc., were hindered from acting as public representatives due to pressure from the military-industrial complex. John Kennedy, Lyndon Johnson, Ronald Reagan, George Herbert Walker Bush, and George W. Bush – all of them were subject to these opposing interests. But eventually, the corporate-government nexus proved too powerful; and in this sense, American Presidents after the Second World War were largely restricted and powerless to uphold their higher personal values. Most of the strategic moves on part of the United States after the end of the Great War were directly in response to an anticipated th...
11 Pages(2750 words)Essay

International Tourism Policy and Practice

Tourism has become a global phenomenon with socio-cultural, environmental and economic impacts. There are several stakeholders in the tourism industry and the governments have to play a key role in policy making and implementation process. The local government takes certain remedial measures from time to time to ascertain the impact and curtail certain activities that may not be necessary. The international tourism market is challenging as both new markets and new destinations are rapidly emerging. Different tourist destinations have their own strategies and policies for successful implementation although not all strategies may be purposeful. UK and Germany are two important tourist destinations in Europe and each country has its...
16 Pages(4000 words)Essay

A Common Foreign and Security Policy

...A Common Foreign and Security Policy (CFSP) Established in the wake of the Second World War, the European Union (formerly the European Economic Community) is a supranational multilateral organization which generates an estimated 30% of the world’s total Gross Domestic Product. In addition to being an economic powerhouse, the European Union (EU) represents European integration in the political, judicial, social and economic spheres. Democracy, negotiation, and collective decision-making through multilateralism are all inherent attributes of the modern EU. The European Union, as an expression of its constituent members, represents the best of the European democratic tradition to the benefit of all member states (Warleigh 2004...
7 Pages(1750 words)Essay

Federal Reserve Policy

...Federal Reserve Policy The US economy has cooled down to the slowest growth rate in decades and unemployment has reached levels not seen in years. Ona global basis, major banks have failed here and abroad as the illiquidity in the system has brought credit availability to a halt. The lack of credit, the lifeline of business, has threatened the ability of firms to do business and expansion is left as an impossibility. Consumer loans for automobiles, appliances, and other goods are difficult to obtain, and when it is available it is expensive. The weakness in the real estate markets has spread to become a system wide problem as sub-prime loans turn into toxic assets leaving financial institutions under-collateralized. The US Federal Reserve...
8 Pages(2000 words)Essay

Monetary Policy when Short-Term Interest Rates are Close at Zero

... change. Since the main objective of the central bank is to attain price stability in long run and to lower the long term interest rate therefore an explicit commitment strategy based upon a targeted inflation rate would be superior to open end statement based upon short run economic goals. (Bernanke, 2004; Bernanke et al., 2004; Sellon, 2003) The above discussed policy options might fall sort of providing the necessary economic stimulus if the short and long term interest rates both approach zero, like what happened in Japan over the last decade. (Sellon, 2003; Richard, 2008; Spiegel, 2006) In that scenario the central bank might resort to bit unconventional measures including exchange rate depreciation, a mix of monetary and fiscal...
12 Pages(3000 words)Essay

How have recent policy changes in school age education affected classroom practice and student achievement in Austrlia Focus on one or more States and Territories

...How have recent policy changes in school age education affected room practice and achievement in Australia? Focus on one or more s and Territories. Introduction Australian education has seen policy changes in school age education. The new National Quality Framework has been introduced for maintaining new quality standard and rating system. Policy changes pertain to long day care, family day care, outside school hour care and preschools to be implemented by January 2012. New staff-to-child ratios and workplace criteria would be implemented with the changes in the education policy. Background The policy decision was taken in 2009 by all Australian governments via Council of Australian Governments (COAG) to form an alliance between all state...
12 Pages(3000 words)Essay

Options for Providing Justice and Guarding the Rights of the Marginalized in Health Policy

... Options for Providing Justice and Guarding the Rights of the Marginalised in Health Policy. Introduction: World Health Organization (WHO) is the most influential organization working within United Nations. Its main objective is to improve the living conditions and environment of the people by providing practical support to countries, witnessing, and monitoring health projects (WHO, 2011). World Health Organization established a Commission on Social Determinants of Health (CSDH) in 2005 to study the cause for health inequalities, and ways to overcome them. The commission published its report in 2008 named “Closing the gap in a generation: Health equity through action on the social determinants of health”. This report also thoroughly...
14 Pages(3500 words)Essay

Negative influences of violent media(more concentrated on video game) and policy that should be created. Argumental essay

...Joe Han Mr. George Argument Based Research 28 October 2102 Negative influences of violent media and policy that should be created. I. Introduction1. Hook: The negative influence of violent media is like pollution because it is harmful and causes negative consequences. 2. Problem: Exposure to violent media increases aggression in peoples’ minds. The most influential medium is your kid’s favorite video games. Doctor Anderson’s study shows that “violent video games are considered to be more harmful in increasing aggression than violent movies or television shows due to their interactive and engrossing nature. With different types of new game control devices, video games allow more physical interaction; the immersive...
6 Pages(1500 words)Essay

The Policy as a Very Important Part of the Safety of Any Company

Planning involves the determination of the future cause of action whereby the manager must know what to do, who is to do, where it is to be done and who is to do it. It involves laying down strategies to prioritize all actions because it can prove difficult to do things at once. In this case, managers are involved with a team of well-trained staff to avoid the fear of unknown. In order to affect planning, both short term and long term plans must be integrated.T he health safety risks that are urgent are catered for first. Likewise purchasing policies must put into consideration the need to buy items which require urgent use to cater for safety. Finally, the implementation should be effective to avoid impediment and incomplete revi...
14 Pages(3500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Fiscal Policy Essay for FREE!

Contact Us