Fiscal Policies And The Fiscal Policy

Monetary Policy is the procedure by which the financial expert of a nation, similar to the national bank or cash board, controls the supply of money. Regularly focusing on a inflation rate or interest rate to guarantee value solidness and general trust in

To be more precise in the way the monetary policy works, it is under three implements that define its functions: open market operations, changes in the discount rate, and changes in the required reserve ratio. These are the functions that provide the Federal Reserves (the Fed) the ability to change the money supply in our economy. It is a matter of actions taken to maintain our country in the best way possible and, of course, stability comes with a price. With things like supporting our troops in other countries, like Iraq and Afghanistan, a cut in tax rates, and increases in overall spending, it adds up to where we have spent more than we have collected in revenue (Fix the

Fiscal policy involves the use of government altering the levels of spending, taxation and borrowing to influence the pattern of economic activity and affect the level of growth of aggregate demand, output and employment. The main goal of fiscal policy is to stimulate economic growth, keep inflation low (target of 2%) and to stabilise economic growth. There are two types of fiscal policy. Expansionary is linked to increases in government spending to boost economic activity and contractionary which is linked to decreasing government spending to lower economic activity.

This policy involves increasing government spending and cutting taxes, in order to spur economic output. But if the government decides they need to do the opposite the government may adopt concretionary fiscal policy. This involves a reduction in government spending and an increase in taxes when faced with an overheating economy. But these actions, may have other effects in the economy. For instance, and expansionary fiscal policy may lead to the crowding out of investment.

A contractionary fiscal policy occurs when government spending is reduced either through from an increase in tax revenues or reduction in public spending and is used in periods in which it seeks slow the growth of aggregate demand. While an Expansionary Fiscal Policy implies an increase in public spending through increases in public spending or lower tax revenues. You can apply expansionary fiscal policies when seeking to increase aggregate demand.

The fiscal policy is one form of the expansionary policy, which comes in many form, In addition to transfer payments and rebates, the two major example of expansionary fiscal policy are increasing government spending and tax cuts. The goal of an expansionary fiscal policy is to improve the growth of the economy level of a country. Also to help the government reduce unemployment, and increase consumer demand and avoid an economic collapse.

Central banks use a money based policy to minimize inflation. They have diverse ways that they do this. For example, the most common way is by raising the rates of the interest and selling securities through open operations in the market. The use of a multiplication of related money within a policy to lower unemployment and avoid the period where people and businesses make less money. The lower the rates of interest will only buy securities from different banks and cause liquidity to increase. In a perfect world, a money based policy should work beside with the national government's policy. However, it rarely works this way. That's because government leaders get re-elected for decreasing taxes and expanding spending. This would mean rewarding people that actually vote and obtain series of actions to reach a goal of contributors that result in a direct, but in an upsetting way. As a result, a policy like a Monetary Policy is usually involves expansion related topics. However, to avoid a great inflation, the policy must be serving to severely limit or control

Monetary policy uses changes in the quantity of money to alter interest rates, which in turn affect the level of overall spending . “The object of monetary policy is to influence the nation’s economic performance, as measured by inflation”, the employment rate and the gross domestic product, an aggregate measure of economic output. Monetary policy is controlled by

      Monetary policy is under the control of the Federal Reserve System and is completely discretionary. It is the changes in interest rates and money supply to expand or contract aggregate demand. In a recession, the Fed will lower interest rates and increase the money supply. The Federal Reserve System’s control over the money supply is the key Mechanism of monetary policy. They use 3 monetary policy tools- Reserve Requirements, Discount Rates/Interest Rates, and Open Market Operations. The reserve requirement is the percentage of bank deposits a bank must hold in reserves and cannot loan out. By raising or lowering the reserve requirements, the Fed controls the amount of loanable funds. The interest rate is the amount the FED charges private banks, so they can meet the reserve requirements. The prime rate is currently set at 5%. If the Interest rate is low, the banks will borrow more money from the FED and the money supply will increase. Interest rates have been above average for the past 20 years, but are currently considered low. Open Market Operations is the most effective and most used

Monetary policy is the mechanism of a country’s monetary authority (usually the central bank) taking up measures to regulate the supply of money and the rates of interest. It involves controlling money in the economy to promote economic

In Foundations of Macroeconomics Seventh Edition by Bade and Parkin, chapter sixteen is titled Fiscal Policy. There are three objects for the chapter. The first object is to be able to “describe the federal budget process and the history of tax revenues, outlays, deficits, and debts”. The second object is to “explain how fiscal stimulus is used to fight a recession”. The third objective is to “explain the supply-side effects of fiscal policy on employment, potential GDP, and the economic growth rate”.

Contractionary fiscal policy is used when economic instability occurs- when the economy is experiencing extreme growth which results in the price level rising significantly.

Firstly, in order to understand how expansionary fiscal policy would be used, we need to understand the ‘deflationary gap’. The deflationary gap is the difference between the full level of employment and the actual level of the economy. Consequently, the government can use expansionary fiscal policy to eliminate the gap. For instance, government spending creates jobs and income for labourers, in turn, these labourers spend more of their addition income and so forth increasing consumer spending and the entire economy. A tax reduction will increase disposable income.

Generally fiscal policy is the set of strategies that government implements or plans to use with certain activities such as the collection of revenues and taxes and expenditure that can influence the overall economic condition of the nation. A well written or planned fiscal policy can lead the nation to the steady path of the strong economy, increase employment and also maintains healthy inflation. Every country needs fiscal policy as fiscal policy plays a vital role on monitoring the pattern of the flow of nation’s expenditure to the economy and also the nation’s revenue generated from the economy. It also helps to stimulate the economic growth during the period of economic recession. The main aim of the fiscal policy is to maintain a steady fiscal growth with respect to both higher and lower economic cycle. There is an intimate relationship between fiscal and monetary policy though these both entities are conducted for different purposes. These are basically not the alternative but the complement to each other. Fiscal policy always supports monetary policy during the time of recession such as Global Financial Crisis of 2008.Many countries enacted lots of stimulus plans related to fiscal policy in order to cope with the Global Financial Crisis of 2008. Among those India also adopted many different new techniques of fiscal policy in order to survive during the Global Financial Crisis of 2008.

Fiscal policy refers to the use of the government budget to influence economic activity. By practicing the fiscal policy, the government decides how much to spend, what to spend, what to spend for and how to finance