top button
Flag Notify
    Connect to us
      Site Registration

Site Registration

What is Fiscal policy and how does it work?

+1 vote
144 views
What is Fiscal policy and how does it work?
posted Jun 28, 2017 by Durga Prasad

Share this question
Facebook Share Button Twitter Share Button LinkedIn Share Button

1 Answer

0 votes

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. It is the sister strategy to monetary policy through which a central bank influences a nation's money supply.

How does it work

Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known as Keynesian economics, this theory basically states that governments can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs inflation (generally considered to be healthy when between 2-3%), increases employment and maintains a healthy value of money. Fiscal policy is very important to the economy. For example, in 2012 many worried that the fiscal cliff, a simultaneous increase in tax rates and cuts in government spending set to occur in January 2013, would send the U.S. economy back to recession. The U.S. Congress avoided this problem by passing the American Taxpayer Relief Act of 2012 on Jan. 1, 2013.

answer Aug 12, 2017 by Ramesh Gowda
...