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As a point of departure, private business investments are considered as fundamental channels in which fiscal policy influences the economic growth. For instance, the endogenous economic growth model explains the dynamism in the capital stock, which is believed to influence the long-term per capita growth rate. This can happen through two ways namely more quantitative investment and more-efficient investments. This follows that the aspect of fiscal policy can be said to influence investments by varying domestic demand, which influence the Growth Development Product (GDP) of a nation, thus influencing the economy growth of a country. Considering a model of a tight fiscal policy where expenditure is reduced and increased taxation like in the case of the US, immense negative expectations are eminent. This reduces the viable incentives fro investments. On equal measure, the fiscal policy, particularly the short terms, can directly affect investment through the cost of capital attributed to the tax system (Razin, Assaf, and Jacob, 2006. This follows that, the long-term fiscal policy on well-designed tax system on liberalized and privatised programmes such as for the case of the US and UK, help private sector investments because of reduced direct government involvement.
For the case of government interest increase, foreign capital is attracted from the foreign investors and this increases the demand for the country’s currency. This implies that the value of country’s currency is increased. It is imperative to note that the increase in the currency value makes the exports from the country in question more expensive. On equal measure, when the government funds discrepancy with issuance of government bonds, the interests’ rates increases across the market due to the government borrowing which creates a higher demand for the credit in the financial markets. It is imperative to note that, theoretically,
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Fiscal and monetary policies formulated and legislated by the government influence and impact business. For instance, government increased deficit results into increased interest rates that in turn adversely affect private investments. Therefore, it requires adequate consultation and high involvement in formulating and implementing any particular fiscal or monetary policy.
nations whose policies have changed drastically in the past ten years. Among the policies of this country, the ones that have experienced great changes are fiscal policy and monetary policy. According to Kashalala (2006), fiscal policies are actions and strategies designed by a country to foster economic growth through controlling the fiscal components of the economy.
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.
Where the global financial crisis has landed the biggest economies of the world into trouble, it has also offered them another chance to look over their current economic and financial practices. Not only has the crunch changed the way development is judged but has also lead to change in the way development is perceived.
In this way the fiscal policy is directly responsible for the level of prices and nationwide employment.
The government manipulates fiscal expenditures and tax rates to stabilize the economy. When there is a lull in economic activity in the nation government will respond by increasing funding of unemployment benefits and tax cuts will automatically follow.
(Farinha & Marques 2001). The government often employs fiscal policy, monetary policy or a combination of both to sway the economy back to an equilibrium position. The manner in which the government employs both policies may result to either fiscal or monetary dominance.
Where the global financial crisis has landed the biggest economies of the world into trouble, it has also offered them another chance to look over their current economic and financial practices and what they have been doing wrong. Not only has the crunch changed the way development is judged but has also lead to change in the way development is perceived.
The country had to contend with a cut of roughly 85 billion USD to in a bid to sequester the government’s debt. The country also adopted a policy to the effect that wealthy Americans will have to pay even more
It is evident that expansionary economic policy involves government increased expenditure which translates to increased income distribution (Mankiw 72). This in turn makes available more disposable income in the economy through the
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