Question

After reading Principles of Macroeconomics, please be able to discuss government spending, taxation and borrowing. In addition, we will consider various economic systems Try to relate the concepts to your personal (all be it, perhaps prospective) life.

Answer 1

Government spending is part of automatic stabilizer and fiscal policies which include government consumptions and transfers payments and investment .

Taxation policies are tools used for fiscal policies to boost economy from recession or contract economy from inflation.

Government borrowings from foreign banks and central banks takes place when it enhances expansionary fiscal policy to provide various benefits To citizens .

For example in real life, when economies enter recession government adopts expansionary fiscal policy to lift aggregate demand and hence real GDP and implementing following 3 tools:

1. Increasing government spending
2. Increasing government borrowing
3. Decrease in taxes