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The government may also choose to increase its own spending and with this, jobs are created, an element that lowers the unemployment rate. Briefly, Fiscal policy is a major driver of the nation’s economic performance.
Government spending would include the purchase of goods and services. Since it has the power to lower or rise, real GDP It qualifies to be a fiscal policy tool. The government can influence economic output if it adjusts its spending. Apart from the effect of government spending on the economy, it also affects businesses dealing with goods and services bought by the government thus multiplying through the economy (Moller, 52). The GDP may be stimulated if consumers spend the paychecks they earn from their businesses. When those dealing with government vehicles receive large orders, their sales tend to increase. This makes them hire more employees who in turn earn paychecks from the companies. The employees then spend this money on goods and services thus increasing spending, leading to a much greater result. This effect is called the multiplier effect.
The changes that occur in taxes affect the average consumer income, and changes in consumption leading to changes in real GDP. These make it a fiscal policy tool. The government can influence economic output by adjusting taxes. They can be changed in several ways, and these include raising or lowering marginal taxes. Secondly, the tax rules can be modified or eliminated (Modigliani & Johnson 34).
These include social security, welfare or unemployment checks. On a monthly basis, the checks go out all over the country thus serving as the income for millions of consumers. As in taxes, changes in transfer payments also leads to changes in consumer income. When consumers spend most of their income, they influence the economic output.
These three tools are the ones that the government mostly administers to the economy to help it in the short term.
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Reacting To Falling Oil Prices and the Global Economic Downturn 5. The Hidden Energy Crisis 5.1 Overview 5.2 Saudi Arabia Consumption Problem 5.3 Impact on the International Oil Market 5.4 Escalating Demand and Social Insecurity 5.5 The Role of Energy Prices 5.6 The Cost to Society 6.
Particularly, the developing countries become a victim of such situation. Thailand, Indonesia and other countries of East Asia during late 1990s are particular examples. The situation is clearly described by Professor Joseph Stiglitz, a chief economist and vice president of World Bank during 1997 to 2000.
This recession made the federal government under the leadership of president Obama to come up with a stimulus package program in the year 2009. The package was commonly known as fiscal policy and it was focusing at economic stimulation via financing government project to create direct employment opportunities.
However, this lukewarm boost to the national productivity was not matched by similar alterations in the unemployment rate. The unemployment rate that stood at 9.5 percent in June 2009 increased to 10 percent by November (United States Department of Labor: Online).
lies to actions undertaken by the Federal Reserve System in order to have influence over the cost of money, availability of money and credit in an aim to promote national economic goals.
The Federal Reserve System should continue its role in controlling money supply as it
Monetary policy on the other side refers to actions that can be taken by the central bank to either slow or ignite the economy. Both Fiscal and monetary policies have a way of affecting the economy either positively or negatively. With reference to the
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
f whether the program has anything to contribute towards the direction of the economy declined to it having much contribution stating that the view of Fed in the economy is concerned about what has been for some time. He views this as being middling. He notes in relation to
ends up by cutting on the amount of tax it charges, people will tend to increase their rate of spending hence allowing them to buy more imported goods and service, hence increasing the rate at which the government borrows funds from financial institutions in other countries as
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