Unicircles Rank: 11 (227 members)
Your Status:
Login required
In economics and political science, fiscal policy is the use of government revenue collection (mainly taxes) and expenditure (spending) to monitor and influence a nation's economy. It developed out of the Great Depression, when the laissez-faire approach to economic management was ended and government intervention became the means of influencing macroeconomic variables. Fiscal and monetary policy are two sister strategies that are used by the government and the central bank in order to reach a county's economic objectives. The theories of the British economist John Maynard Keynes are the basis for fiscal policy. According to Keynesian economics, when the government changes the levels of taxation and government spending, it influences aggregate demand and the level of economic activity. This influence enables the fiscal authority to target the inflation (which is considered "healthy" at the level in the range 2%–3%) and to increase employment. Additionally, it is designed to try to keep...moreIn economics and political science, fiscal policy is the use of government revenue collection (mainly taxes) and expenditure (spending) to monitor and influence a nation's economy. It developed out of the Great Depression, when the laissez-faire approach to economic management was ended and government intervention became the means of influencing macroeconomic variables. Fiscal and monetary policy are two sister strategies that are used by the government and the central bank in order to reach a county's economic objectives. The theories of the British economist John Maynard Keynes are the basis for fiscal policy. According to Keynesian economics, when the government changes the levels of taxation and government spending, it influences aggregate demand and the level of economic activity. This influence enables the fiscal authority to target the inflation (which is considered "healthy" at the level in the range 2%–3%) and to increase employment. Additionally, it is designed to try to keep GDP growth at 2%–3% and the unemployment rate near the natural unemployment rate of 4%–5%. This implies that fiscal policy is used to stabilize the economy over the course of the business cycle.Changes in the level and composition of taxation and government spending can affect the following macroeconomic variables, among others:
Aggregate demand and the level of economic activity;
Saving and investment;
Income distribution;
Allocation of resources.Fiscal policy can be distinguished from monetary policy, in that fiscal policy deals with taxation and government spending and is often administered by an executive under laws of a legislature. Monetary policy, on the other hand, deals with the money supply and interest rates and is often administered by a central bank (the Federal Reserve Bank in the US and the Bank of England in the UK). It sets the base interest rate (the federal funds rate in the US) and also affects the supply of money (for example, using quantitative easing policy to increase the money supply). Both fiscal and monetary policies can be used in order to influence the economic performance in the short run....less
