Fiscal Policy

General Fiscal policies are defined as those policies that are used on tax spending as well as government policies to influence the nation’s economy. More specifically fiscal policies are used for influencing the macroeconomic conditions. These policies will influence the aggregate demand for services and goods, inflation, employment, as well as economic growth. Fiscal policies are often seen to be in contrast with monetary policies. Central bankers mostly enact these policies instead of elected officials of the Government. 

Fiscal policies meaning

As discussed previously Fiscal policies means those policies that are used on tax policies or government spending to influence economic conditions. Fiscal policies can be further explained as a corrective measure by the government for checking the uncontrolled economic contraction or expansion. If there is uncontrolled economic expansion then hyperinflation is inevitable. On the other hand, economic contraction can eventually lead to deflation. The two main processes that are used by the government to keep the country’s economy stable include public spending and tax rates.

In this context, trough, expand, contract and peak are important phases within the economic cycle. The main reason why fiscal policies are put to use is to bring stability throughout the economic cycle. It also helps in minimizing the effects of fluctuating effects of the economic cycle on the citizens. Hence, in comparison to the monetary policy that is usually adopted by the government for facilitating development and welfare within the nation, the adoption of fiscal policies is also important.  

Fiscal and Monetary Policy

Fiscal policy is often seen to be in contrast with the monetary policy that is not enacted by elected officials of the government but by central bankers. To understand this better, the definitions of monetary policy and fiscal policy should be analyzed properly. 

The policies that are mostly used by central bankers are known as monetary policies. These are either used checking the growth of an economy or stimulating it. Through incentivizing businesses and individuals to spend or borrow, the monetary policy works towards spurring economic activity. Further through restriction of incentivizing and spending savings, monetary policy is seen to function as inflation or brake during an overly heated economy. In this context, it should be mentioned that monetary policy is a rather blunt tool during the contraction or expansion of the money supply. 

Separate from the monetary policy the core aim of the fiscal policies of most governments is to effectively target overall spending level, the overall spending composition, or both within an economy. Two widely used ways of affecting fiscal policy are changing the policies of government spending or the policies of government tax. 

Expansionary Fiscal policy

To illustrate how a government utilizes fiscal policies to impact the economy firstly an economy needs to be considered that is currently experiencing a recession. Here a rebate of tax stimulus might be issued by the government to increase growth in fuel economics and aggregate demand. Most of the time it can be observed that the government incorporates expansionary measures specifically at times of an economic slowdown. The economic slowdown that is recession or stagnation affects the economy in a significant way. Major effects include low overall demand, an unexpected fall in GDP. High unemployment, reduced and demand consumer spending. 

Hence, to facilitate economic growth as well as the overall recovery of the country’s economy, the government usually takes two major actions. These have been further discussed in the following:

• Increasing the spending of the government: Through this process, the government tries to increase the spending of the public. Increasing the spending of the public makes sure that more jobs become available. This in turn ensures a higher employment level by increasing the rate of consumption. 
• Decreasing the rate on taxes: In this specific process, the government identifies different direct as well as indirect taxes and cuts them down. This facilitates the presence of more money in the hands of the customer. Hence it enhances their power of purchasing thereby improving overall demand for services and goods. Due to this GDP increases.

Conclusion 

In this article, the topic of Fiscal policies has mostly been discussed. These policies are mostly used by the government on their tax policies and spending to impact the economic conditions. This is an important topic under general awareness and several subtopics have been discussed under this topic including Fiscal policies meaning Fiscal and Monetary Policy, and Expansionary Fiscal policy. In this context monetary policies have been discussed which refers to the enacting of different policies by the central government.