Macroeconomics: Assignment

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Macroeconomics Unit 4 assignment Lane Litton 7-1-11

1)Fiscal policy is the government’s policy with respect to spending and taxation. It is set by the federal government. It impacts our economy in a couple of ways. Since government spending is a component of aggregate demand government spending on goods and services has a direct effect on the level of aggregate demand. Taxes also effect aggregate demand, however they do so indirectly. When tax’s rise or fall, they change the disposable income of households, which alters consumption. 2)All the different government agencies present congress with the total amounts of money they would like to run their agencies for the next fiscal period. Congress haggles and tries to balance a complete budget by approving & disapproving the various amounts. Eventually the budget goes to the Senate for approval & then to the President. 3)Automatic stabilizers are elements of fiscal policy that automatically change in value as national income changes. Three examples of automatic stabilizers are progressive income taxes, welfare benefits, and unemployment benefits. 4)Fiscal policy is different in different economic systems. The government tends to play a larger role in investment spending in developing countries. A reason for this is that state owned enterprises account for a larger part of the economic activity in developing countries then they do in developed countries. Developing countries tend to rely more on government rather than the private sector to build their schools, roads, and hospitals then developed countries do. In developed countries the government tends to spend more on social services then in non developed countries. Governmental taxes also vary. In industrial countries social security taxes are common, while in developing countries they are rare. In developing countries the taxes on international trade are very important. Fiscal policy differs greatly depending on the economic system. 5)...
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