Wednesday, February 3, 2010

Fiscal Policy

Fiscal Policy is the use of government spending and revenue to influence the economy, and is contrasted with the other macroeconomics policy, the monetary policy. The two main devices in fiscal policy are government spending and taxation. By changing government spending and/or taxation, several variables can be changed, such as:

  • Aggregate demand, and therefore the level of economic activity
  • Resource Allocation
  • Distribution of Income

Fiscal policy refers to the overall effect of the budget outcome on economic activity. There are two parts to the fiscal policy: the expansionary and contractionary policies:

  • Expansionary policy is the increase in government spending either through a simple increase in how much the government allocates its resources to spend or decreasing tax revenue.
  • Contractionary policy is aiming at increasing government spending and increasing tax revenue in order to reducing demand in economy.
Posted by at
Labels:

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)

Macroeconomics

Macroeconomics is like the collection of resources in a Real-time strategy game like Starcraft, right? We click on the drones and order them to get money, and once we have enough money, we build something like a supply depot to get a bigger population cap, build other buildings to research stuff to make us richer and better. Perfect world, with no inflation, no worries, and just money, BUT… we’re in real life, not the perfect world. That means that there’s inflation, privatization, and most of all, policies that deal with money. Starcraft is much simpler: it’s got no policies to worry about and no government breathing down your neck to do the job well. Well, we're done with the intro, let's get down to the specifics and technicalities.