Answer :
Changes in government spending or tax policy to achieve particular macroeconomic goals fall under the topic of fiscal policy. Fiscal policy refers to the use of government revenue collection (mainly taxes) and expenditure (spending) to influence the economy.
Who?
Fiscal policy is typically enacted by the government. It involves decisions taken by government officials and policymakers, often advised by economists and financial experts.
What?
Government Spending: This involves changes in the levels of government expenditures on various programs, like infrastructure, education, and healthcare. For example, increasing government spending can stimulate economic growth, while decreasing spending can slow it down.
Tax Policy: This involves altering tax rates and tax structures. For instance, reducing taxes can increase disposable income for consumers and businesses, potentially stimulating economic activity.
When?
Fiscal policy is used continuously but is particularly notable during economic recessions or booms when adjustments are made to stabilize the economy.
Where?
Fiscal policy is employed by national governments worldwide. Each country's approach may differ based on its unique economic conditions and policy goals.
Why?
The primary objectives of fiscal policy include:
- Economic Growth: Stimulating or slowing down growth to maintain a stable economy.
- Employment: Reducing unemployment through policy measures that encourage job creation.
- Inflation Control: Managing inflation by adjusting spending and taxes.
How?
Expansionary Fiscal Policy: This is used to combat recession. It involves increasing government spending, decreasing taxes, or a combination of both. The aim is to increase demand and stimulate economic activity.
Contractionary Fiscal Policy: This aims to reduce inflation and slow down an overheating economy. It involves decreasing government spending, increasing taxes, or both, to reduce overall demand.
In essence, fiscal policy is a critical tool for governments to manage and stabilize their economies, ensuring sustainable growth and financial stability.
