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Explaination Of Fiscal Policy Government Expenses Essay

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Fiscal policy can be determined as the use of government spending and taxes in order to alter the Gross Domestic Product (GDP). From the macro perspective, the federal budget is a tool that can shift aggregate demand and thereby alter macroeconomic outcomes. Although fiscal policy can be used to pursue any of the economic goals, we need to explore its potential to ensure full employment and observe the impact on inflation. The mix of output and distribution of income will determine the potential of fiscal policy. The objective of fiscal policy is not always to increase aggregate demand. At times, the economy is already expanding too fast and fiscal restraint seems to be more appropriate. This means tax hikes or spending cuts are intended to reduce aggregate demand. In the short term, priorities may reflect the business cycle corresponds to a natural disaster but in the longer term; the drivers can be development levels, demographics, or resource endowments. The desire to reduce poverty might lead a low income country to tilt spending toward primary health care, whereas in an advanced economy, pension reforms might target looming long-term costs related to an aging population. The main objective of Fiscal Policy is to achieving desirable price level. Economic stability requires the stability of general prices. Fiscal policy should be used to remove the instability in price level so that ideal level is maintained. However, the maintenance of a desirable price level has good effects on production, employment and national income. Besides providing goods and services, fiscal policy objectives vary. In the short term, governments may focus on macroeconomic stabilization. For example, stimulating an ailing economy, combating rising inflation, or helping reduce external vulnerabilities. In the longer term, the aim may be to foster sustainable growth or reduce poverty with actions on the supply side to improve infrastructure or education. Although these objectives are broadly shared across countries, their relative importance differs depending on country circumstances. Another objective is, to achieving desirable consumption level which is important for political, social and economic consideration. At times, consumption can be affected by expenditure and tax policies of the government. Therefore, fiscal policy should be used to increase welfare of economy. Fiscal policy is created to achieving desirable employment level. This will then determine the living standard of the people. Apart from that, it is necessary for political stability and for maximization of production. The purpose of fiscal policy is to divert resource and increase capital. Deficiency of capital is the main reason for under-development in the under-developed countries. This is where large amounts are required for industry and economic development. If the market does ...

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