2 June 202028 November 2019 Definition of fiscal policy Fiscal policy involves the government changing the levels of taxation and government
spending in order to influence aggregate demand (AD) and the level of economic activity. Fiscal policy is often used in
conjunction with monetary policy. In fact, governments often prefer monetary policy for stabilising the economy. Expansionary (or loose) fiscal policy
Diagram showing effect of expansionary fiscal policy
Deflationary (or tight) fiscal policy
Diagram showing the effect of tight fiscal policy
UK fiscal policyUK Budget deficit In 2009, the government pursued expansionary fiscal policy. In response to a deep recession (GDP fell 6%) the government cut VAT in a bid to boost consumer spending. This caused a big rise in government borrowing (2009-10). (Government borrowing also rose because of the recession leading to lower tax revenue) When the new coalition government came into power in May 2010, they argued the deficit was too high and then announced plans to reduce government borrowing. This involved spending limits. These austerity measures were a factor in causing lower economic growth in 2011 and 2012. Fine tuning – fiscal policy
Difficulties of fine tuningIn the real world, fine tuning is difficult to achieve due to several factors.
Terms relating to fiscal policy
Criticism of fiscal policy
Evaluation of fiscal policyThe success of fiscal policy will depend on several factors, such as
Brief history of fiscal policy
US fiscal policy
Evaluation of US expansionary fiscal policy in 2009 Further Reading on Fiscal Policy
Essays on fiscal policy
Last updated: 10th July 2017, Tejvan Pettinger, www.economicshelp.org We use cookies on our website to collect relevant data to enhance your visit. Our partners, such as Google use cookies for ad personalization and measurement. See also: Google’s Privacy and Terms site By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent. You can read more at our privacy page, where you can change preferences whenever you wish. What is expansionary and contractionary fiscal policy?Expansionary fiscal policy—an increase in government spending, a decrease in tax revenue, or a combination of the two—is expected to spur economic activity, whereas contractionary fiscal policy—a decrease in government spending, an increase in tax revenue, or a combination of the two—is expected to slow economic ...
Which type of fiscal policy allows government to decrease the level of aggregate demand through increases in taxes?Contractionary fiscal policy does the reverse: it decreases the level of aggregate demand by decreasing consumption, decreasing investments, and decreasing government spending, either through cuts in government spending or increases in taxes.
What are the 3 fiscal policies?There are three types of fiscal policy. They are neutral policy, expansionary policy,and contractionary policy.
What are the 2 methods of fiscal policy?There are two main types of fiscal policy: expansionary and contractionary.
|