...In 2008 following the collapse of the housing market, the economy subsequently collapsed itself. The people of the United States of America endured an economic crisis of a magnitude that hadn't been seen in eighty years. Along with the loss of homes came the loss of jobs and subsequent significant drop in federal revenue. Coming into presidential office in 2009, this was the most significant issue Barack Obama was tasked with correcting. To which Obama put forth a $787 billion dollar stimulus package. When looking at whether the stimulus package was a success or not, the first and possibly most important factor is that economists almost universally agree the stimulus package was necessary in preventing the nation from enduring a depression. Though there are skeptics as there always will be, especially in subjects that involve politics, through economic experiments most economists conclude without the stimulus package the economy would've caused a depression. But another important factor is the recovery act had a long term effect. And the answer in short, is yes. The "Recovery Act" did manage to create 5 million new jobs and even used some of it's budget to invests in solar and wind power. A very forward thinking act while in the middle of an immediate crisis. However, while the Recovery Act did prevent the economy from hurdling into a modern day great depression, it was not perfect in it's mission. President Obama was confident the national unemployment rate would not rise...
Words: 465 - Pages: 2
...2010-2011 China fiscal policy analysis China ministry of finance undersecretary Wang Jun made a speech in the fourth international taxation dialogue system plenary session. He pointed out that, “from now on, China government will keep put into effect on positive fiscal policy and stable monetary policy, which are aimed at improving the pertinences, flexibility and foresight of fiscal policy.” (Wang, 2011) The policy and target Review back to 2010, China government insists in implementing positive fiscal policy, especially in stimulating the economic growth, transferring the way of economic growth and applying flexible in fiscal policy. As the figure 1 shows, in 2010, China positive fiscal policy facilitate in mainly four aspects: advancing the local fiscal reformation, strengthen the medium-sized and small enterprises and rural construction, promoting the economic development and supporting the social undertaking. Figure 1: Year 2010 China important fiscal policy content Coming out date | Fiscal policy | 4.30 | Treasury department sets fiscal policy: central budget provides specialized fund for helping to expand the minor firms ‘guarantee operations, which can improve the financing environment of minor firms. | 5.13 | Treasury department and SAT (State Administration of Taxation) make an announcement; government will solve the problem that farmers are hard to get loan, by diminishing the sales tax and income tax. | 5.31 | Government will start the trial allowance...
Words: 2116 - Pages: 9
... 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 then Prime Minister who eliminated License Raj a pre- and post-British Era mechanism of strict government control on setting up new industry. Following these strong economic reforms, and a strong...
Words: 5763 - Pages: 24
...Essay Fiscal Policy According to Driver, (2010, p. 86) fiscal policy is the collective government policy relating to spending and taxation and is usually used to evaluate how government policies affect the economy at large. There are two very crucial objectives of fiscal policy; first is to distribute the goods that contribute to the welfare of the public and long-term growth of the economy and secondly is to facilitate the stabilization of the cyclical fluctuation of the economy (Carmignani, 2013, p 1). As a supplement, on the other hand, the budget facilitates the accomplishing of these objectives. The purpose of this discussion will be evaluating the fiscal policy as implemented by the government of Australia between 2010 and 2015. The study will state whether the Australian Government followed expansionary or contractionary fiscal policy over the stated period. The study will also discuss on whether budget deficit always indicate an expansionary fiscal policy and whether budget surplus always indicate that fiscal policy is contractionary. The study will also look into the May 2015 budget to determine whether the Australian government implemented the expansionary or contractionary fiscal policy. Finally, the study will ascertain on the effectiveness of the Australia’s fiscal policy between 2010 and 2015. Fiscal Policy between 2010 and 2015 The two approaches of fiscal policy are expansionary policy and contractionary policy. Under expansionary policy, the government spends...
Words: 1685 - Pages: 7
...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...
Words: 1853 - Pages: 8
...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...
Words: 15653 - Pages: 63
...1. Definition: Fiscal policy in economics is to use the government revenue collection and the expenditure to have an impact on economy. The policy is based on John Maynard Keynes, the British economist, who stated the increase or decrease in the aggregate demand and expenditures will influence the economic system factors. (Sullivan,A.&Steven M,S 2005,p387) The changes in tax and government expenditure are regarded as the major fiscal policy instruments. Government revenue collection (taxes) plays the role in how much government and individuals have to spend. For instance, the government could stimulate the consumers’ spending by cutting taxes. The effect of fiscal policy: The variables will influence the economy in the aggregate demand so that the policy will achieve the objectives including the price stability, the economic growth and the employment. Keynesian economics indicates that the changes efficiently stimulate the aggregate demand at the economy boom’s beginning. (Blinder 2012) It is argued that Keynesian economics model can be used to establish the framework for strong economic growth. However, economists also debate the fiscal policy effectiveness. The arguments concentrate on crowding out effect whether the interest rate increase, which may offset the spending stimulation, is led by the government borrowing. (Fiscal policy of Cliff Notes 2013) Once the government faces the deficit, the public fund will be important, the interest rate will improve. 2....
Words: 1801 - Pages: 8
...of effectiveness of fiscal policy for output and employment under different schools of thought. Fiscal Policy : Fiscal policy is carried out by the governmental and/or the policymaking branches of government. The two main instruments of fiscal policy are government expenditures and taxes. The government collects taxes in order to fund expenses on a number of public goods and services for example, hospitals and national defense. Deficits and Surpluses in the Budget: The budget deficit, which is the difference between government expenditures and tax revenues, is funded by government borrowing; the government issues long‐term, interest‐bearing bonds and uses the proceeds to finance the deficit. The total store of government bonds and interest payments outstanding, from both the present and the past, is known as the national debt. Thus, when the government finances a deficit by borrowing, it is adding to the national debt. When government expenditures are less than tax revenues in a given year, the government is running a budget surplus for that year. The budget surplus is the difference between tax revenues and government expenditures. The revenues from the budget surplus are typically used to reduce any existing national debt. In the case where government expenditures are exactly equal to tax revenues in a given year, the government is running a balanced budget for that year. Expansionary and contractionary fiscal policy: Expansionary fiscal policy is defined as an increase in...
Words: 1162 - Pages: 5
...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...
Words: 7145 - Pages: 29
...Fiscal Policy 1. Meaning of Fiscal policy Fiscal policy refers to the way government utilizes taxation and spending with the aim of influencing the overall economy. Usually, the government use fiscal policy to ensure strong and sustainable economic growth and reduce poverty (Horton & El-Ganainy, 2009). The function and objectives of fiscal policy have increasingly gained popularity in the current financial crisis as most governments have stepped in to promote financial systems, jump-start growth, and solve the implications of the crisis on vulnerable groups. The main goals of fiscal policy include * Maintain low rate of inflation * Stimulate economic growth especially during economic recession * Typically, fiscal policy works to stabilize economic growth, bust economic cycle and avoid a boom 1. Responsibility for fiscal policy The executive (the president) and the Congress are responsible for fiscal policy 2. Difference between fiscal policy and monetary policy Fiscal policy is concerned with changes in taxation and changes in federal government purchases while monetary tool is involve shifts in supply of money and in the interest rates. Both the monetary and fiscal instruments are aimed to achieve favorable macroeconomic policy goals. When policymakers aim to affect the economy, they manipulate the fiscal policy and the monetary policy. The central of bank any country indirectly influences activity by changing the quantity of money under circulation...
Words: 548 - Pages: 3
...Supplemental Unit 5: Fiscal Policy and Budget Deficits Fiscal and monetary policies are the two major tools available to policy makers to alter total demand, output, and employment. This feature will focus on fiscal policy, what it is and its potential and limitations as a tool with which to promote economic stability and strong growth. What is Fiscal Policy? When the supply of money is economic constant, government expenditures must be financed by either taxes or borrowing. Fiscal policy involves the use of the government’s spending, taxing and borrowing policies. The government’s budget deficit is used to evaluate the direction of fiscal policy. When the government increases its spending and/or reduces taxes, this will shift the government budget toward a deficit. If the government runs a deficit, it will have to borrow funds to cover the excess of its spending relative to revenue. Larger budget deficits and increased borrowing are indicative of expansionary fiscal policy. In contrast, if the government reduces its spending and/or increases taxes, this would shift the budget toward a surplus. The budget surplus would reduce the government’s outstanding debt. Shifts toward budget surpluses and less borrowing are indicative of restrictive fiscal policy. It is important to note that a budget deficit is different from the national debt. A deficit occurs when government spending exceeds revenue over a year, quarter or month. A deficit will increase the size of the national...
Words: 2503 - Pages: 11
...The concept of fiscal policy is the level of government spending and taxation set by the president and congress. Fiscal policy contains short term and long term effects; short run effects include fiscal policy on aggregate demand for goods and services. Long term effects are better saving and investments over the period of time. The government goes about changing the prices to obtain a stable prices, low unemployment and high growth. In the united states the legislative and executive branch is in charge of putting the policy in place. Fiscal policy can be used to stimulate a sluggish economy or slow down an economy that is growing too rapidly. Prior to the Great Depression the nation maintained economic stability by sustaining a balanced budget, soon they found out that more had to be done. President Roosevelt was the first to apply fiscal policy into the government’s economic system. When this policy was first implemented it didn’t seem to have great success and scholars report this was in part of the current economic condition as this was during the middle of the Great Depression. The late 1930’s proved to be the point when the fiscal policy was out into place most effectively. As WWII started employment rose, and the New Deal was implemented. This allowed government relief and new government organizations. The New Deal is actually what fueled the progress of fiscal policy. This was the first the government had intervened to help the citizen’s with their financial burdens...
Words: 798 - Pages: 4
...Principles of Macroeconomics, 9e - TB1 (Case/Fair/Oster) Chapter 9 The Government and Fiscal Policy 9.1 Government in the Economy 1 Multiple Choice 1) Fiscal policy refers to A) the techniques used by a business firm to reduce its tax liability. B) the behavior of the nation's central bank, the Federal Reserve, regarding the nation's money supply. C) the spending and taxing policies used by the government to influence the economy. D) the government's ability to regulate a firm's behavior in the financial markets. Answer: C Diff: 1 Topic: Government in the Economy Skill: Definition 2) Which of the following is NOT a category of fiscal policy? A) government policies regarding the purchase of goods and services B) government policies regarding taxation C) government policies regarding money supply in the economy D) government policies regarding transfer payments and welfare benefits Answer: C Diff: 1 Topic: Government in the Economy Skill: Conceptual AACSB: Reflective Thinking 3) What determines tax revenues? A) the income tax rate B) the rate of interest C) the money supply in the economy D) the rate of inflation Answer: A Diff: 2 Topic: Government in the Economy Skill: Conceptual AACSB: Reflective Thinking 4) Which of the following is INCORRECT regarding tax revenues? A)...
Words: 9621 - Pages: 39
...Guidelines for Fiscal Adjustment Fiscal Affairs Department International Monetary FundContentsPrefaceIntroductionWhy May Fiscal Adjustment Be Needed? The Impact of Fiscal Policy on Macroeconomic Policy Objectives Inflation External Current Account Growth Fiscal Adjustment to Ensure Sustainability Links to Other Policy InstrumentsHow Should the Fiscal Stance Be Assessed? Fiscal Impact of Alternative Methods of Deficit Financing Other Measures Used to Assess the Fiscal Stance The Sensitivity of a Fiscal Assessment to the Time Frame of Analysis Definition of Government Accounts for Macroeconomic Analysis Coverage of Government Operations Timing of the Impact of Fiscal Transactions Defining the "Overall Fiscal Balance"How Much Fiscal Adjustment Is Required? A Framework for Fiscal Adjustment Determining the Amount of Fiscal Adjustment Reducing the Fiscal Deficit Quality of AdjustmentHow Should Fiscal Adjustment Be Effected? Measures to Improve the Tax System and Increase Revenue Characteristics of a Desirable Tax System Design of Major Taxes Rationalization of Expenditure Policies Expenditure Reduction in the Short Run Structural Public Expenditure ReformReferencesBoxes1. Adverse Consequences of Excessive Fiscal Expansion for Growth2. The Exchange Rate Effects of Fiscal Policy3. Quasi-Fiscal Activities of Public...
Words: 15497 - Pages: 62
...Fiscal and Monetary Policy Governments can use both fiscal and monetary policies to move the economy from a recessionary or expansionary gap. Fiscal policies include increased or decreased government spending, increased or decreased taxation; on the other hand monetary policies include increased or decreased money supply, changes in interest rate, etc. One of the tools of fiscal policy is government spending, the initial equilibrium is represented by the point E. With increased government spending, the IS curve shifts to the right and new equilibrium is reached at point E’, with increased level of output and higher interest rate. Monetary policy can help the economy back to the long run equilibrium. Let the initial equilibrium point is E, with an increase in money supply, the LM curve shifts to the right and new equilibrium is reached at the E’ with a higher income level and lower interest rate (shown in the figure below). The major benefits of fiscal policy are: (i) Government spending can be directed to the areas like infrastructure, education, and housing. Announcement of fiscal policy can be implemented immediately. (ii) Fiscal policy can be used to discourage negative externalities, for example, “green” taxes can be used to discourage polluting activities. (iii) Fiscal policy is effective in times of recession as it provides the stimulus in the economy by increasing the aggregate demand in the economy. The major disadvantages of fiscal policy...
Words: 610 - Pages: 3
