Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Macroeconomics – Fiscal Policy ► Hold your excitement.* ► Fiscal policy refers to how government taxing and spending policy can be used to influence the macroeconomy. ► It has nothing to do with Nazi dictators and dancing cats.* Ye olde definition ► Fiscal policy is the changes in the expenditures or tax revenues of the federal government, undertaken to promote full employment, price stability and reasonable rates of economic growth.* Which means.. ► In the short term, fiscal policy can be used to reduce the extremes of recession and inflation. * And… ► If the economy is in recession, then an expansionary fiscal policy can increase aggregate demand through some combination of tax cuts and/or spending increases. ► In English that means increasing output and cutting unemployent.* On the other hand ► If an economy is suffering inflation, then a contractionary fiscal policy can reduce aggregate demand through some combination of tax increases and/or spending cuts. ► In English that means decreasing aggregate demand in the economy and controlling inflation.* So? ► Fiscal policy can be misused and have unintended consequences or side effects. ► But that would imply the leaders in our government weren’t looking out for us or working in our best interests. ► If a highly expansionary policy of tax cuts and/or spending increases is used at a time when the economy is not in a recession, it can increase aggregate demand in a way that leads to inflation.* ► If a contractionary fiscal policy of tax increases and/or spending cuts reduces aggregate demand when an economy is already in or near recession, it can make the recession deeper and longer.* ► An increase in taxes can also affect people's willingness to work, save and invest, and this could cause a decrease in economic growth.* Fiscal Policy vs Monetary Policy ► So, in some ways fiscal policy is similar to monetary policy in that they both try to promote growth, control inflation, and keep prices stable. But think of it this way: • Monetary policy is an indirect approach. • Fiscal Policy is a direct approach.