Fiscal policy is the impact of the federal budget-taxing, spending, and borrowing-on the economy. Fiscal policy is almost entirely determined by Congress and the president, who are the budget makers. It is based on the Keynesian economic theory which emphasized that government spending and deficits can help the economy weather its normal ups and downs. (Edwards 555-556)
The key to fiscal policy, however, is to find a balance between changing tax rates and public spending. For example, stimulating a stagnant economy by increasing spending or lowering taxes runs the risk of causing inflation to rise. This is because an increase in the amount of money in the economy, followed by an increase in consumer demand, can result in a decrease in the value of money - meaning that it would take more money to buy something that has not changed in value. If it weren't for the limits of fiscal policy, the increase in economic productivity could cross over a very fine line and lead to too much money in the market. (http://www.investopedia.com/articles/04/051904.asp)
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ReplyDeleteFiscal policy is the impact of the federal budget-taxing, spending, and borrowing-on the economy. Fiscal policy is almost entirely determined by Congress and the president, who are the budget makers. It is based on the Keynesian economic theory which emphasized that government spending and deficits can help the economy weather its normal ups and downs. (Edwards 555-556)
ReplyDeleteThe key to fiscal policy, however, is to find a balance between changing tax rates and public spending. For example, stimulating a stagnant economy by increasing spending or lowering taxes runs the risk of causing inflation to rise. This is because an increase in the amount of money in the economy, followed by an increase in consumer demand, can result in a decrease in the value of money - meaning that it would take more money to buy something that has not changed in value. If it weren't for the limits of fiscal policy, the increase in economic productivity could cross over a very fine line and lead to too much money in the market. (http://www.investopedia.com/articles/04/051904.asp)
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