Econ: Fiscal Policy


Fiscal PolicyFiscal policy is carried out by the government. The goals of fiscal policy is to achieve or maintain full employment, to achieve or maintain a high rate of economic growth, and to stabilize prices and wages. The two main instruments of discretionary fiscal policy are government expenditures and taxes. The government collects taxes in order to finance expenditures on a number of public goods and services such as highways and national defense.

Expansionary fiscal policy used to combat a recession is defined as an increase in government expenditures, a decrease in taxes, or both increase in government expenditures and decrease in taxes, that causes the government’s budget deficit to increase and its budget surplus to decrease.

Contractionary fiscal policy used to combat inflation is defined as a decrease in government expenditures, an increase in taxes, or a decrease in government expenditures and an increase in taxes, which causes the government’s budget deficit to decrease and its budget surplus to increase.

Arrows-02-june

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