"The use of government revenue expenditures to influence macroeconomic variables developed in reaction to the Great Depression of the 1930s, when the previous laissez-faire approach to economic management became unworkable."
The decisions made by a government regarding taxation and spending.
Fiscal Policy Definition: Fiscal policy refers to the use of government spending and taxation to influence the macroeconomy.
Objectives of Fiscal Policy: It includes achieving economic growth, price stability, full employment, and other economic goals.
Types of Fiscal Policy: There are two types of Fiscal Policy- Expansionary Fiscal Policy and Contractionary Fiscal Policy.
Expansionary Fiscal Policy: It involves increasing government spending and decreasing taxes to stimulate economic growth.
Contractionary Fiscal Policy: It aims to slow down economic growth by decreasing government spending and increasing taxes.
Fiscal Multiplier: It is the ratio of the changes in national income to changes in government spending or taxation.
Time Lags: Refers to the period between the implementation of the fiscal policy and its effects on the economy.
Budget Deficits: It is the difference between government expenditures and revenues.
Public Debt: The total amount owed by the government to its creditors, which includes individuals, banks, and foreign governments.
Crowding Out Effect: The decrease in private sector spending as a result of increased government spending.
Automatic Stabilizers: Refers to the policies that mitigate the impact of changes in economic activity on government revenue and spending.
Laffer Curve: It shows the relationship between tax rates, tax revenue, and economic activity.
Taxation: It is the process of collecting revenue from individuals, businesses, and other entities to fund government operations.
Government Spending: The use of public funds to finance various activities, including public services, defense, and infrastructure.
Fiscal Rules: The guidelines for government spending and taxation to ensure the achievement of fiscal policy objectives.
Fiscal Responsibility: Refers to the government's commitment to maintaining fiscal sustainability and the proper utilization of public funds.
Macroeconomic Indicators: Economic data, such as Gross Domestic Product (GDP), unemployment rates, and inflation, which are used to monitor the health of the economy.
Public Goods: Goods and services that are provided by the government for the general welfare of society.
Transfer Payments: The redistribution of public funds from one sector of society to another, including welfare programs and social security benefits.
Fiscal Federalism: The distribution of fiscal responsibilities between different levels of government, including federal, state, and local authorities.
Expansionary Fiscal Policy: This type of policy aims to increase overall economic activity by increasing government spending, decreasing taxes or both. Expansionary fiscal policy is used when there is a recession, deflation, or high unemployment.
Contractionary Fiscal Policy: This type of policy aims to decrease overall economic activity by reducing government spending, increasing taxes or both. Contractionary fiscal policy measures are used to combat inflation or overheating of the economy.
Automatic Stabilizers: These are policies that are built into the economy and help stabilize it automatically without any intervention. The two main automatic stabilizers are unemployment benefits and progressive taxation.
Discretionary Fiscal Policy: This type of policy involves conscious, targeted actions taken by the government to influence the economy. Examples include infrastructure spending, tax incentives, and subsidies to specific industries.
Non-Distortionary Fiscal Policy: This type of policy aims to provide a neutral effect on the economy by not interfering with the allocation of resources, while trying to stabilize the economy. Examples include budget surpluses or deficits that occur based on economic activity.
Supply-Side Fiscal Policy: This type of policy aims to increase overall economic activity by focusing on increasing the production and supply of goods and services through tax cuts, deregulation, and incentives for investment.
Keynesian Fiscal Policy: This policy aims to increase the aggregate demand in the economy through government spending and tax cuts. This policy is named after economist John Maynard Keynes.
Balanced Budget Policy: This policy aims to balance the government's budget by ensuring that government spending equals revenue. This policy promotes fiscal discipline and is often used by governments that are heavily indebted.
Deficit Spending Policy: This policy involves spending more money than is generated from taxes or other revenue sources. Deficit spending is often used during times of recession or crisis.
MMT (Modern Monetary Theory) Fiscal Policy: This theory advocates for government spending as a way to stimulate economic growth, arguing that taxes and government debt are irrelevant in a country that controls its own currency.
"Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorized that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity."
"Fiscal and monetary policy are the key strategies used by a country's government and central bank to advance its economic objectives."
"Changes in the level and composition of taxation and government spending can affect macroeconomic variables, including: - Aggregate demand and the level of economic activity - Saving and investment - Income distribution - Allocation of resources."
"Fiscal policy deals with taxation and government spending and is often administered by a government department; while monetary policy deals with the money supply, interest rates and is often administered by a country's central bank."
"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."
"The previous laissez-faire approach to economic management became unworkable during the Great Depression of the 1930s."
"Fiscal policy is used to stabilize the economy over the course of the business cycle."
"Fiscal policy is based on the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy."
"Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Keynesian economics theorized that government changes in the levels of taxation and government spending influence aggregate demand and the level of economic activity."
"Inflation is considered 'healthy' at the level in the range 2%–3%."
"Fiscal policy is designed to increase employment."
"The unemployment rate near the natural unemployment rate of 4%-5% is targeted by fiscal policy."
"Both fiscal and monetary policies influence a country's economic performance."
"The use of government revenue expenditures to influence macroeconomic variables developed in reaction to the Great Depression of the 1930s."
"The previous laissez-faire approach to economic management became unworkable during the Great Depression of the 1930s."
"Fiscal policy can affect macroeconomic variables, including aggregate demand and the level of economic activity, saving and investment, income distribution, and allocation of resources."
"Government revenue collection (taxes or tax cuts) and expenditure are the primary tools of fiscal policy."
"Fiscal policy is often administered by a government department."
"Fiscal policy deals with taxation and government spending, while monetary policy deals with the money supply and interest rates."