Fiscal Policy

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PURPOSE

The purpose of the assignment is to enhance learners’ understanding of how fiscal policy can be used to achieve economic goals.

REQUIREMENT

Discuss and evaluate how fiscal policy tools can assist in improving economic growth, employment and mitigate inflation.

Answer

Fiscal policy is a policy concerned with Government Revenues and Government Expenditures. The tools are government expenditures (G), taxes (T), both direct and indirect, deficit financing, i.e., government borrowing and printing of new notes, subsidies, and transfer payments like unemployment allowances, stipends and scholarships. These tools can improve the economic growth, employment and mitigate inflation. Economic growth can be improved by price stability, influencing the consumption pattern, economic development and removal of deficit in balance of payments. Price stability, inflation and deflation are the big vices which the capitalist world has to face. During the inflation, there are economic sufferings for the fixed income groups. Moreover, the inflation creates so many long-run social and economic problems. If government expenditures are reduced and taxes are increased - all they will reduce NI many a time through multiplier effect. Thus, when excess demand is controlled - the inflation will be controlled. On the other hand, during deflation, if government expenditures are increased and taxes are reduced - then, NI will go up through multiplier effect and economic depression will come to an end. But in most of the poor countries, government expenditures are rigid downward. Moreover the government expenditures and imposition of taxes are influenced by political decisions. The curtailment of government expenditures and raising of the taxes will obstruct economic activities - producers will be disappointed and foreign private investment is discouraged.

Influencing the Consumption Pattern, in capitalist economies, governments normally do not interfere in the...
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