Question

Describe the roles of government bodies that determine fiscal policy. Explain the effects of fiscal policies on the economy’s production and employment. How do changes in government spending and/or taxes positively or negatively affect the economy’s production and employment?

Answer 1

Fiscal policy is the policy of the central government of the country. Under the fiscal policy the government adjusts the spending and taxes to monitor the economy as a whole. During the economic recession and inflation the government would adjust the fiscal policy according to the situation. Under depression faced by the economy, government would increase its spending and decrease the level of taxes and at the time of inflation, the government will try to decrease the spending and increase the level of taxes. This would leads to the smooth movement of the economy.

Fiscal policy is a significant device for dealing with the economy as a result of its capacity to influence the total output produced—that is, GDP. The principal effect of a policy is to raise the demand for goods and services. This more prominent interest prompts increments in both output and costs. How much higher interest expands output and costs depends, thus, on the condition of the business cycle. On the off chance that the economy is in retreat, with unused beneficial limit and jobless laborers, at that point increments sought after will lead for the most part to more output without changing the value level. On the off chance that the economy is at full employment, paradoxically, a fiscal expansion will have more impact on costs and less effect on output. This capacity of fiscal policy to influence output by influencing total interest makes it a potential apparatus for economic stabilization. In a recession, the legislature can run an expansionary fiscal policy, in this manner reestablishing output to its typical level and to give jobless specialists back something to do.