Fiscal policy

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1、FiscalpolicyIneconomics,fiscalpolicyistheuseofgovernmentspendingandrevenuecollectiontoinfluencetheeconomy.[1]Fiscalpolicycanbecontrastedwiththeothermaintypeofeconomicpolicy,monetarypolicy,whichattemptstostabilizetheeconomybycontrollinginterestratesandthesupplyofmoney.Thetwomaininstrumentsoffis

2、calpolicyaregovernmentspendingandtaxation.Changesinthelevelandcompositionoftaxationandgovernmentspendingcanimpactonthefollowingvariablesintheeconomy:·Aggregatedemandandthelevelofeconomicactivity;·Thepatternofresourceallocation;·Thedistributionofincome.Fiscalpolicyreferstotheoveralleffectoftheb

3、udgetoutcomeoneconomicactivity.Thethreepossiblestancesoffiscalpolicyareneutral,expansionaryandcontractionary:·AneutralstanceoffiscalpolicyimpliesabalancedbudgetwhereG=T(Governmentspending=Taxrevenue).Governmentspendingisfullyfundedbytaxrevenueandoverallthebudgetoutcomehasaneutraleffectonthelev

4、elofeconomicactivity.·Anexpansionarystanceoffiscalpolicyinvolvesanetincreaseingovernmentspending(G>T)throughrisesingovernmentspendingorafallintaxationrevenueoracombinationofthetwo.Thiswillleadtoalargerbudgetdeficitorasmallerbudgetsurplusthanthegovernmentpreviouslyhad,oradeficitifthegovernmentp

5、reviouslyhadabalancedbudget.Expansionaryfiscalpolicyisusuallyassociatedwithabudgetdeficit.·Acontractionaryfiscalpolicy(G

6、lusthanthegovernmentpreviouslyhad,orasurplusifthegovernmentpreviouslyhadabalancedbudget.Contractionaryfiscalpolicyisusuallyassociatedwithasurplus.TheideaofusingfiscalpolicytocombatrecessionswasintroducedbyJohnMaynardKeynesinthe1930s,partlyasaresponsetotheGreatDepression.MethodsoffundingGovernm

7、entsspendmoneyonawidevarietyofthings,fromthemilitaryandpolicetoserviceslikeeducationandhealthcare,aswellastransferpaymentssuchaswelfarebenefits.Thisexpenditurecanbefundedinanumberofdifferentways:·Taxation·Seignorage,thebenefitfromprinti