...Assignment On Fiscal Policy Issues: ← What is the most prominent document that elaborates the Fiscal Policy of Bangladesh? ← As head of the government how would you design your next fiscal policy? Submitted By Md. Mizanur Rahman Roll No: 03 MPA in GPP April 18, 2011 Introduction Fiscal policies play a main role to the economic development of a country. It is the decision of the government about How to earn revenue and gather resources from various sources, for what to spend those earnings and resources, how much to spend and, when to spend. Main elements of fiscal policy are a) Government income and b) Government expenditure The most prominent document that elaborates the Fiscal Policy of Bangladesh is the National Budget passed in the Jatio Sangsad (The National Assembly of Bangladesh) every year. Fiscal Management in Bangladesh Fiscal management one of the big challenges for any government and it is more crucial for a developing country like Bangladesh. So the policy makers need to design fiscal policy very carefully. Maintaining macroeconomic stability and attaining economic growth are the main tasks. So we need to go through the following process to designing and managing fiscal policy: ➢ Inflow of money management for government income ❖ To maintain its daily activities, i.e. to run the government ❖ To ensure protection for the helpless ❖ To provide necessary services to...
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...Fiscal policies are utilized to influence the economy via the government revenue and taxes; two types are discussed in Chapter 31, expansionary and contractionary. Expansionary fiscal policies are utilized during a recession to lower taxes, increase the aggregate demand, government spending, and real GDP. The overall goal is to determine the direction of the country; expansionary fiscal policies create budget deficit when it is balanced at the outset. The expansionary policy will close a recession gap, increase spending and create an aggregate demand curve because the people have money for spending on products and services; thereby, increasing the economic condition of the country. For example, when the unemployment rate is high, the government, specifically the Federal Reserve & the U.S. Treasury will boost the economy by increasing the amount of money supplied to the U.S. and reduce the discount rate, and reserve. On the other hand, the contractionary fiscal policies control demand-pull inflation and restrict government spending by increasing taxes. The overall goal of a contractionary fiscal policy is to lower aggregate demand and inflation; creating a budget surplus. In other words, it does the opposite of an expansionary fiscal policy to sustain the economic condition by decreasing the aggregate demand curve for products and services. Unfortunately, it slows the growth of the economy because the people have less income for spending (McConnell, Brue, & Flynn, 2015)...
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...Wells 2009) a brief explanation of fiscal policy is when the government uses taxes, government transfers and government purchases of goods and services to shift aggregate demand curve to the right to help heal the economy. (Reem Heakal 2010) describes it in simpler terms as the means by which the government adjusts its levels of spending in order to monitor and influence a nation’s economy. It is the sister strategy to monetary policy with which a central bank influences a nation’s money supply. Reem Heakal 2010 explains that Keynesian economics in theory can influence the macro economy by influencing productivity levels by increasing or decreasing taxes and public spending. This fiscal policy is set in place to get the economy back on track by increasing consumer spending and lowering unemployment. There are tools in the fiscal policy. Ex.: Is an investment tax credit which is a tax break to consumers. (Finishing the Job 2010) talks about the economic crisis was aided with swift stimulus packages to 130 million Americans and continued to find creative ways to unfreeze the credit markets. To summarize fiscal policy is too used to: Stimulate the economy, return to full employment, stabilize prices and combat inflation. Expansionary and contractionary means what it sounds like. We want to expand the economy and aggregate demand (A shift to the right in the demand curve) with government spending thus balancing it with contractionary policy ( A shift to the left in the demand...
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...Keynesians and Monetarists over the Effectiveness of Fiscal and Monetary Policy in the Is-Lm Framework In: Business and Management Keynesians and Monetarists over the Effectiveness of Fiscal and Monetary Policy in the Is-Lm Framework Discuss the difference between Keynesians and monetarists over the effectiveness of fiscal and monetary policy in the IS-LM framework. Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy. In this essay I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework. I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. IS-LM framework The IS-LM model was initially developed by John Hicks in 1937 but was made popular...
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...European Fiscal Policy: Coordination of fiscal policy in Eurozone Wibowo Suhaidi (1235036) Tilburg University Course: Financial Economics Professor: S.C.W. Eijffinger October 2011 ABSTRACT The Stability and Growth pack has been discussed extensively in determining whether it is sufficient to undermine fiscal policy coordination in the Eurozone. Even before the recent sovereign debt crisis hitting the Eurozone the SGP has been in much of critics and the current situation calls for deeper analysis on the SGP and whether more coordinated fiscal policy in Eurozone is necessary in strengthening fiscal policy framework. This paper analyzes the implementation of fiscal policy in Eurozone with the SGP as the guideline and found out that despite effectively maintain the budgetary balances of Eurozone countries, the SGP failed to deliver overall fiscal stability. Therefore, a more coordinated form of fiscal policy is required in order to achieve the goal of fiscal stability in Eurozone. 1 I. Introduction The formation of European Monetary Union and the adoption of Euro as the single currency have the consequence that member countries are losing their monetary policy independence at the national scope. Therefore, one possible solution is to use fiscal policy in order to mitigate the asymmetric shocks, as fiscal policy is still on the hand of the national government of each member countries. However, from the Monetary Union point of view it is not desirable to...
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...Discuss the difference between Keynesians and monetarists over the effectiveness of fiscal and monetary policy in the IS-LM framework. Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy. In this essay I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework. I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. IS-LM framework The IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by Hansen in order ‘to provide a framework for analyzing the factors determining the level of aggregate demand’. The IS-LM model is a short run model of the determination of output. It shows the unique combination of income...
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...1 2 >> Fiscal Policy A BRIDGE TO PROSPERITY? I n 1998 the Japanese government though on a smaller scale. Indeed, many completed the longest suspension countries attempt to manage aggregate de- bridge in the world. The 6,500-foot mand by using discretionary fiscal policy. span linking Awaji Island to the city of Governments also adjust taxes in an at- Kobe cost $7.3 billion to build. Yet as skep- tempt to manage aggregate demand. They tics had predicted, it currently carries very may reduce taxes to try to stimulate the little traffic—about 4,000 cars a day. By economy or raise taxes when they believe comparison, America’s longest suspension that aggregate demand is too high. bridge, the Verrazano Bridge that links New In this chapter, we will learn how discre- York City’s Staten Island to the borough of tionary fiscal policy fits into the model of Brooklyn, carries more than 300,000 cars short-run fluctuations we developed in each day. Chapter 10. We’ll see how deliberate In Japan, stories like this are common. During the 1990s the Japanese government What you will learn in this chapter: changes in government spending and tax policy affect real GDP. We’ll also see how ® What fiscal policy is and why it is an important tool in managing economic fluctuations ® Which policies constitute an expansionary fiscal policy and which constitute a contractionary fiscal policy ® Why...
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...Fiscal Policy ECON372 Fiscal Policy Fiscal policy is the government’s way of stimulating or slowing down the economy. Actions taken by the government can slow growth if things are moving too fast or stimulate growth if the economy is in a lull. Walmart, a major retailer in the United States, is one of the many organizations that are influenced by fiscal policies. Tax rates and spending can affect the organization’s ability to sell goods and services as well as create jobs for the economy. Based on fiscal policies implemented and economic predictions, there are a few recommendations that can be made to Walmart in order to positively influence the economy and their business. Federal Government Spending Fiscal policy is changes in government spending and taxes in order to influence the economy in some way. It works by changing the level or composition of aggregate demand (AD). Government spending in the United States has steadily increased from 7% of GDP in 1902 to almost 40% today (Chantrill, 2015). A decent amount of federal spending has gone for health care, education, pensions, and welfare programs. Defense spending in the United States has fluctuated in the last century, rising from 1% of GDP, peaking at 41% in World War II, declining from 10 percent in the Cold War to five percent today (Chantrill, 2015). Government spending on education has expanded from about one percent of GDP in 1900 to peak at 6 percent in the second decade of the 21st century. Government...
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...Fiscal Policy The aim of this report is to give some insight into recent, current and forthcoming changes and adjustments in the monetary and fiscal policies of the EU member countries and the accession countries, particularly from the viewpoint of challenges of the enlargement of the euro zone. This report summarizes a more detailed analysis from the regional inputs to monetary and fiscal policy work output/input, where project’s research partners from both the EU and other countries provided their country-specific views on most challenging issues of monetary and fiscal policies for individual countries and/or groups of countries in their process of Eastward enlargement of the euro zone. In relation to the Eastward Enlargement of the Euro zone, it is crucial to take into account the experiences of current EMU Member States, the fiscal stances in candidate countries, together with their development possibilities, as well as the Community influence on shaping national fiscal policies. Fiscal situation and middle-term perspectives in EMU Member Fiscal situation and its development over the recent years in current EMU Member States was closely related with the requirements of Economic and Monetary Union. Therefore, it is important to elaborate on the fiscal criteria in order to understand the factors which were influencing shaping of fiscal policy in these countries, as well as challenges which await states eager to join the EMU in the future. 2) An explication of...
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...Fiscal Policy Paper Juan Mendez ECO/372 November 10, 2013 Adelaida-Torres-Dilan Fiscal Policy Paper This paper will detail how and why the U.S. deficit, surplus and debt have an impact on the U.S. Economy. The effect of deficits, surplus, and debt can impact unemployment and University of Phoenix in many different ways. A budget deficit occurs when the government spending exceeds the revenue in a given time period. A budget surplus occurs when the government spending is less than the revenue in a given time period. The national debt is a running total of all deficits minus all surpluses. The United States borrows money by having the Department of treasury issue treasury bonds and then the bonds are purchased by U.S. companies, individuals, and foreign governments, companies, and individuals. The size of the federal deficit/surplus is very sensitive to the business cycle in the United States. Larger deficits during recessions and smaller deficits during expansions are part of the normal up and down movement of the United States Debt. Automatic stabilizers of the economy are included as part of the annual budget and include payments such as unemployment benefits, food stamps, and other welfare benefits. These automatic stabilizers usually increase during a recession and decrease during an expansion. Income tax revenue is also considered an automatic stabilizer because tax revenue usually decreases during a recession and increases during an expansionary period...
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...Fiscal Policy Paper Learning Team B ECO/372 November 30, 2015 DON OLSEN Fiscal Policy of the U.S.A People of a country are influenced by the economic conditions of the country in several ways. There were different phases faced by the U.S economy in different period of times from shortage of funds and budget and excess of funds and budget to huge debts. These economic situations influence the lives of the people in many ways. In this paper the United States economy’s surplus, debts and deficits as well as the ways it influences the lives of normal taxpayers of the US, social security situation in the coming years and Medicare beneficiaries, people with no employment, Students of University of Phoenix, the status and repute of the financial position of the US in the world, a local self-propelled production exporter, an importer of Italian Company Clothes, and the GDP of the US, will be discussed. Taxpayers Taxpayers in the US are impacted very much by the US surplus, deficits, and debts etc. There would be definitely low money available in the country when there is deficit in the budget of the country that would affect the taxpayers. The government takes the help to improve the money situation in the country. A surplus in the country impacts the taxpayers as although there is excess of money in the country and there are fewer taxes, but they are there. Despite of excess of money, people in the country have to pay taxes. The people in the country paying taxes are affected...
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...Fiscal Policy Fiscal Policy The United States’ deficit, surplus, and debt have had and are currently continuing to have a profound effect on the economy of this country. Although the federal government could play more of a role in boosting exports through tax reform and training assistance, some industries are staging a comeback on their own without help from Washington, because of improving marketplace trends. Taxpayers and Unemployed Individuals The United States' deficit, surplus, and debt have a very far-reaching effect on taxpayers and unemployed individuals. The immediate effect on taxpayers is as the deficit goes up and debt does as well the taxpayers are going to absorb the brunt of repayment. This will also indicate that as the deficit climbs and debt becomes larger that the dollar will become less valuable. The dollar losing value means that employers as well as consumers will have to be more careful with their money. The trade surplus has very little effect on the consumer because without a tariff in place on the outgoing goods it does not offer much if any of a return to the taxpayers. While the taxpayer and employers are watching every last dollar that makes it harder for the unemployed individual to get a job in his field. At this stage high quality jobs are harder to come by because employers have to make cuts to maintain pre-recession profits. Therefore, unemployed workers are forced to stay on unemployment or try for jobs with lower skill qualifications...
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...Y V Reddy: Fiscal policy and economic reforms Address by Dr Y V Reddy, Governor of the Reserve Bank of India, at the National Institute of Public Finance and Policy (NIPFP), New Delhi, 26 May 2008 (edited transcript). * * * Respected Professor Govinda Rao and distinguished scholars, I am honoured by my friend, Prof. Govinda Rao’s, kind invitation to me to visit the National Institute of Public Finance and Policy (NIPFP). I had the opportunity of working very closely with the NIPFP on several occasions. Apart from my personal affinity to the NIPFP, there is a close relationship between the Reserve Bank of India (RBI) and the NIPFP, from an institutional point of view also. For instance, Prof. Govinda Rao is a Member of the Southern Local Board of RBI. Initially, I thought of speaking on fiscal policy and economic reforms from a central banker’s perspective. I realised later that while I have been working as a central banker over the last one decade, I had worked for most parts of the three decades prior to that in the Ministry of Finance, in the Government of India as well as in the Government of Andhra Pradesh. So it was a difficult choice for me as to whether I should give a fiscal view of the monetary policy or a monetary view of the fiscal policy. I have worked for a short period in the World Bank, which gives a global governments’ view and also in the IMF, which gives a global monetary authority’s view. As a via-media, I have opted to give a practitioner’s perspective...
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...ACKNOWLEDGMENT WE WOULD LIKE TO EXPRESS OUR GRATTITUDE TO DR.ASHOK PANIGRAHI WHOSE STIMULATING SUGGESTIONS AND ENCOURAGEMENT HELPED US TO COMPLETE THE PROJECT CONTENTS 1. Acknowledgment 2. Introduction to Indian economy 3. Meaning of fiscal policy 4. Need & importance of EP 5. Use of fiscal policy by Indian government 6. Fiscal policy before & after liberalization 7. Indian tax system & fiscal policy 8. Role in development of Indian Economy 9. Shortcomings or deficiencies in our fiscal policy 10.Findings & suggestions on Indian fiscal policy ECONOMY OF INDIA The economy of India is the eleventh largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). The country is one of the G-20 major economies and a member of BRICS. On a per capita income basis, India ranked 140th by nominal GDP and129th by GDP (PPP) in 2011, according to the IMF. After the independence-era Indian economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies, leading to massive inefficiencies and widespread corruption. However, later on India adopted free market principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V. Narasimha Rao the...
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...is fiscal policy and how can it be used to manage the economy? Briefly describe the current UK fiscal policy, and comment on the effect it may have on the economy. Fiscal policy is the use of government spending, taxation and borrowing to influence the level and growth of aggregate demand, output and employment. Aggregate demand (AD)= Consumption + Investment + Government spending + (Exports – Imports). Changes in fiscal policy affect both aggregate demand and aggregate supply. (Riley 2006) Fiscal policy is used to achieve macroeconomic objectives such as full employment, price level stability and sustained economic growth. Expansionary fiscal policy is an increase in government expenditures or transfer payments, or a decrease in tax revenue. A tax cut will increase AD because it increases households’ disposable income. The greater the disposable income the greater is the quantity of goods and services demanded and therefore the greater is AD. This will stimulate economic growth in a recession, which will shift the AD curve to the right. (Parkin, Powell and Matthews 2008) The magnitude of the shift = expenditure multiplier x the increase in government expenditures. In the short run it will increase both Gross Domestic Product (GDP) and the price level. An increase in the price level will increase the money wage rate, which reduces the SRAS. The SRAS curve shifts left until in the long run real GDP = potential GDP at a higher price level. Contractionary fiscal policy is the...
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