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(MACROECONOMICS) Explain why the actual budget deficit is not a good indicator of the fiscal stance and suggest any other better alternatives - Essay Example

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Governments need to put in place indicators that would convey information regarding the impact of their fiscal policies on financial resources and domestic demand…
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(MACROECONOMICS) Explain why the actual budget deficit is not a good indicator of the fiscal stance and suggest any other better alternatives

Download file to see previous pages... Moreover, ideal and functional fiscal stance indicators should embrace in-depth analysis of fiscal policies and collective economic variables.
The actual budget deficit has from time to time been used as an indicator of the fiscal stance, although various shortcomings have rendered it a rather inadequate indicator. The overall balance of a government budget is basically a measure of the difference between government expenditure and revenue. In a case where expenditure outweighs revenue, the overall balance presents an actual budget deficit, which is an indication of an expansionary fiscal stance. The actual budget deficit indicates a fiscal stance where the negative impact of revenue on an economy’s aggregate demand is far much implicative of the positive effects achieved through government spending. Gross national product of any given economy at any given time is on the receiving end as it is negatively impacted by the fiscal policies put in place by the government (International Monetary Fund, 1989, p.76).
However, the measure of actual budget deficit needs to be analyzed and judged more cautiously for accurate and relevant indication of the fiscal stance. In case keen judgment and analysis of the actual budget deficit measure is compromised, it ceases to act as a good indicator for the fiscal stance with respect to other economic variables. The actual budget deficit is also regarded as deficient indicator of fiscal stance, since it only offers impacts on aggregate demand perspectives and overlooks other economic variables such as economic sustainability, monetary stance, and growth aspects. Moreover, the actual budget deficit overlooks other economic complexities such as the manner in which the deficit is financed with regards to successive impact of the country’s economic variables.
Fiscal impact complexities encompass the manner in which an actual budget deficit is financed among other special measures that are put in place to ...Download file to see next pagesRead More
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