'Governements Use Fiscal Policy to Help Them Achieve Their Macroeconomic Objectives' Explain What Is Meant by This Statement and Discuss Specific Fiscal Measures That the Uk Government Has Implemented in Recent Years to

Topics: Tax, Public finance, Keynesian economics Pages: 6 (1829 words) Published: December 12, 2010
Economy, Society and the Built Environment

‘Governments use fiscal policy to help them to achieve their macroeconomic objectives’

Explain what is meant by this statement and discuss specific fiscal measures that the UK government has implemented in recent years to influence economic activity in the built environment.

FISCAL POLICY: “A combination of government spending and taxation used to achieve macroeconomic management. (The flow of government money in and out of the treasury.)” (Danny Myers, 2006, pgs 75&126)

MACROECONOMIC OBJECTIVES: “Targets relating to the whole economy, such as employment, price, stability and the balance of payments.” (Danny Myers, 2006, pg128)

The Governments Macroeconomic (nations economy) objectives:
1.Low inflation/stable prices
2.Sustained economic growth
3.Low unemployment
4.Balance of payments between imports and exports (keeping money within the country as well as spending abroad 5.Environmental protection
6.Redistribution of income and wealth to poor

RECENT YEARS: The fiscal measures looked at in this essay will be taken from 1990 onwards.

ECONOMIC ACTIVITY: “The production and distribution of goods and services at all levels.” (Wall Street Words, David L. Scott. 2003)

THE BUILT ENVIRONMENT: “The built environment is made up of various types of property (residential, commercial, industrial etc); linked by infrastructure (sewers, canals, roads, tunnels etc) and separated by spaces in between (parks, woods, playing fields, landscaped areas, squares etc)”. (Danny Myers, 2006, pg6)

AGGREGATE DEMAND: “All planned expenditures for the entire economy summed together.” (Danny Myers, 2006, pg123) •By influencing Government taxation and expenditure, aggregate demand can be stimulated to achieve Macroeconomic objectives such as; price stability, full employment and economic growth. •It is the total demand for goods and services in an economy.???

Increase in government spending and/or a decrease in taxes that causes the government’s budget deficit to increase or budget surplus to decrease. •This is a method used in a recession to stimulate the economy by providing each household with more disposable income, which can be used for consumption expenditures, which then stimulates aggregate production. It also decreases unemployment, which leads to further increases in income.

Decrease in government spending and/or an increase in taxes that causes the government’s budget deficit to decrease or its budget surplus to increase. •Decreases the amount of disposable income per household meaning the output and national income is less.

EXPLANATION OF STATEMENT: ‘Governments use fiscal policy to help them to achieve their macroeconomic objectives’

Fiscal policy deals with the governments spending and taxation. There are two types of fiscal policy, Expansionary and Contrationary. When the government needs to stimulate the economy by increasing public spending then they will decrease taxes so that each household has more disposable income to be spent on consumer goods. In turn this puts more money back into the economy, creating more jobs and encouraging economic growth. An increase in aggregate demand leads to a higher inflation as there is more money being spent on limited goods and services, which pushes the prices up. To counteract this the government decreases taxation and spending, so that consumer households have less disposable income to spend on goods and services, this decreases aggregate demand and brings inflation back down with it. To achieve a balance of stable prices the government must mediate between the two.


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