Earn up to
$50000
for inviting friends
to get StartUp Bonus
from InstaForex
No investments required!
GET BONUS
55%
from InstaForex
on every deposit
Reply to thread
Results 1 to 3 of 3

Thread: A review on fiscal policy

  1. #1 You can automatically minimize the read posts in your account in the 'Forum Settings'
    FX Vampire
    I am:
     
    lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec has a reputation beyond repute lacogec's Avatar
    Join Date
    Feb 2016
    Posts
    1,664
    Accumulated bonus
    723 USD (What is this?)
    Thanks
    3,384
    Thanked 3,320 Times in 937 Posts
    SubscribeSubscribe
    Subsribed 0

    Default A review on fiscal policy

    Fiscal policy consists of government decisions to vary certain fiscal aggregate such as total government spending and total tax revenue as opposed to some other aspects of public finance which are primarily concerned with the effects of specific expenditure and taxes.
    The objectives of fiscal policy include achieving: full employment, price stability, equitable distribution of income, external equilibrium, economic growth, and economic development.
    Fiscal policy could be expansionary; it could be restrictive. An expansionary fiscal policy is characterized by an increase in real government like any other expenditure, government expenditure needs to be financed.
    LIMITATIONS
    1. Timing problem has posed a serious threat to the use of fiscal policy.


  2. 1 user say Thank You to lacogec for this useful post.
  3. #2 You can automatically minimize the read posts in your account in the 'Forum Settings'
    Forum Master
    I am:
    ----
     
    dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade has a reputation beyond repute dtvade's Avatar
    Join Date
    Jan 2018
    Posts
    7,795
    Accumulated bonus
    6505 USD (What is this?)
    Thanks
    11,485
    Thanked 21,813 Times in 3,819 Posts
    SubscribeSubscribe
    Subsribed 1
    This post is sponsored by a content payout program available to anyone to participate.
    A review on Fiscal Policy

    The major responsibility of every government out of many others is to work on having a good and sustainable economy. Every government is involved in revenue generation and spending. Revenue generation and effective use of resources (financial, human, and natural) are the backbone of the economy. The government has to, on a regular basis adjusts or optimizes her rates of spending and monitoring of tax rate purposely to influence the economy for the good or benefits of the citizens.

    Fiscal policy is a popular term used in the world of politics and economics in general. It is an aspect of governance that cannot be ignored and had been in existence for many decades. The idea of fiscal policy came into existence based on the theory proposed by a British Economist (John Keynes) that government spending and changes in the levels of taxation influence aggregate demand and overall economic activity. In a simple way, fiscal means budget, and invariably, fiscal policy is a tool for stabilizing any economy.

    Fiscal policy and monetary policy are interchangeably used in some cases but there is a difference. Fiscal policy has to do with government spending and taxation while monetary policy deals with interest rates and supply of money in the system. Both of them are very strong tools and they are quite complementary to each other to an extent. Undoubtedly, both of them have a very strong influence on the economic performance of a country. They determine and reveal the direction and the state of the economy at any point in time.

    The three basic tools of fiscal policy are the use of government spending, taxation and transfer of payments.
    -Taxation covers income, capital gains from investment, properties, and sales. This is known to be the main source of funding of the government
    -Government spending covers different types of subsidies, welfare programs (education, health etc), public works or infrastructural development, payment if salaries, and many more.

    See also: Wide range of InstaForex technical indicators.

    Fiscal policy in terms of the formulation is the responsibility of the congress or parliament and relevant government officials in the country. The policy however becomes effective when used (as expected) in conjunction with monetary policy. The implementation of monetary policy is the responsibility of the central or the federal bank. The parliament and the central bank work hand-in-hand to achieve the objective of economic improvement of the country. Overall, the main objective of fiscal policy is the creation and sustenance of the health and the growth of the economy.
    The expectation or an average standard covers the following major areas and they are as follows;
    -growth rate of the economy should be at least 2% yearly by all measures or relevant indicators
    -unemployment rate should not go beyond 4.5%
    -inflation rate should not exceed 2%
    -expansion phase of the business cycle should be stable
    The policy or the adjustment affects the following variables (macroeconomic) which are;
    -aggregate demand
    -level of economic activity
    -savings
    -investment

    Try Forex indicators in MT4 with $1000 No Deposit Bonus now!

    -distribution of income
    -allocation of resources

    Name: fiscal.PNG Views: 199 Size: 76.7 KB


    There are two major types of fiscal policy which are;

    (a) Expansionary fiscal policy- There is a series of challenges that any economy may face at one point or the other. Such could be recession which might have set in due to poor management if the economy. At the same time, politics and culture could have their influence or cause it. In such a situation, the demand or the yearning of the citizens would be to experience a relief from such a situation. This automatically puts the government of the day under pressure which needs to be effectively managed. The only and the best option for the government is to put in place measures that would
    make money available in the system that the consumers would have access to in different ways such as loans, subsidy on goods, products and services
    -create more job opportunities so that the citizens would be engaged and have a means of generating income

    See also: Wide range of InstaForex technical indicators.

    -spends more and cut taxes which would bring some reliefs on individuals and even corporate bodies
    The policy put in place in this type of situation is termed expansionary fiscal policy. Creating this type of policy can only be realistic if the government in question had succeeded in creating a surplus when the economy was booming. In this sense, it takes a very high sense of responsibility on the side of the government to implement this time of policy in no time especially the need arises

    (b) Contractionary fiscal policy- In some cases, there may be a lot of money in circulation which leads to inflation. Though this may have to do with a booming economy but one way or the other some factors are probably not under check with the appropriate measures. In the end, inflation always has a negative or destructive effect on the living standard of the citizens. The approach or the type of policy here which is aimed at stabilizing the economy may have to result in slowing down the economic growth. This is known as contractionary fiscal policy. This involves increasing taxes and cutting down of government spending. This is never a welcome development but it is necessary to prevent things from getting out of control. This type is hard or it is never desired in any part of the world by an average citizen. In a nutshell, it is a very unpopular policy

    It is very clear that the fiscal policy cannot be effective in most cases without monetary policy. Simply, the monetary policy and fiscal policy are complimentary. The department in charge of monetary policy (in the process of formulation and the implementation of fiscal policy) has to be involved. The departments have to make sure that there is an increase in supply during the expansionary phase and decrease it during the contractionary phase. One of the processes or the major responsibility is raising and bringing down the interest rates as it may be applicable. There is actually a drop in money supply when there is a rise in interest rates and vice versa. Both fiscal policy and monetary policy cannot do without each other but it is however known that monetary produces faster results than fiscal policy.

    Though trading on financial markets involves high risk, it can still generate extra income in case you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.


  4. 81 users say Thank You to dtvade for this useful post.
  5. #3 You can automatically minimize the read posts in your account in the 'Forum Settings'
    FX Zombie
    I am:
     
    Danosahon has much to be proud of Danosahon has much to be proud of Danosahon has much to be proud of Danosahon has much to be proud of Danosahon has much to be proud of Danosahon has much to be proud of Danosahon has much to be proud of Danosahon has much to be proud of Danosahon has much to be proud of Danosahon's Avatar
    Join Date
    Aug 2019
    Posts
    2,625
    Accumulated bonus
    2650 USD (What is this?)
    Thanks
    1,169
    Thanked 2,410 Times in 953 Posts
    SubscribeSubscribe
    Subsribed 0
    This post is sponsored by a content payout program available to anyone to participate.
    Fiscal Policy

    In economic and political theory, fiscal policy is generally the allocation of government revenues (or taxes) and spending (spending). In fact, the combination of these policies allows the government to target both inflation (the state of the economy where goods and services are selling less than the present value of those same goods and services) and to boost employment. Fiscal policy can be used to create jobs, but also to increase revenue. The main reason for the latter is that a government will raise taxes if its income exceeds its expenditures.

    In most countries, a tax system is usually implemented to fund a government's expenditure. But in some countries, there are no such systems, so it is up to the government to decide what it wants to fund. A tax system is a set of rules that the government uses to collect taxes from people. This includes the collection of a certain percentage of all taxable income, a minimum rate of tax, and a number of other charges. This system is called taxation.

    Governments can use any type of revenue to finance its expenditure, but a good tax system is usually the first priority of governments. Some countries have no income tax, and are thus dependent on indirect taxation, whereas others rely solely on direct taxation. In the United States, however, taxes are collected on both income and consumption.

    When the government's income exceeds its expenditures, it is said to be in deficit, and the government needs to make sure that the economy maintains its financial stability by means of maintaining a certain level of taxation. When the government is able to maintain sufficient revenue, it is then free to spend on any projects that it deems necessary. The aim is to improve the economy by creating jobs, improving productivity, and increasing economic output. In order to maintain a certain level of revenue, a government must make adjustments to the distribution of income.

    One of the major advantages of fiscal policy is that the government can intervene to reduce unemployment. In most advanced economies, fiscal policy reduces unemployment because of lower expenditure in areas with high unemployment and higher income in areas with lower unemployment. This is because a government reduces its expenditure on social programs that provide jobless assistance such as welfare, retirement schemes, health care, and education, and social security, while it increases the income level of those who have jobs.

    See also: Earn with no risks involved and no deposit required right now!


    There are a number of disadvantages of fiscal policies. Disadvantages are more pronounced when a government's expenditure is high, especially if the population's disposable income is relatively low.

    In addition to having many disadvantages, fiscal policy has some advantages. Some governments use fiscal policy as a way of creating jobs, particularly in developing countries, and as a means of achieving economic development. It is usually the case that a higher level of taxation reduces poverty and increases national income, as the money collected by the government is invested on infrastructure projects that contribute to economic development and growth.

    Another advantage of fiscal policy is that it allows for greater control over the economy, which allows a government to increase efficiency. A large amount of investment in infrastructure projects is often necessary in order to ensure that the economy is able to function smoothly.

    One of the major disadvantages of fiscal policy is that it limits the capacity of a country to invest in the creation of new businesses. This is because a government has no control over money and the monetary system of a country, which in turn limits the ability to create money and regulate economic activity. By creating a larger amount of debt, however, the government can borrow money in order to finance its spending.

    Another disadvantage of fiscal policy is that it restricts the government's ability to spend on the goods and services of consumers, which causes inflation. As the government borrows more money, prices rise, and consumers' purchasing power decreases.

    See also: Invest in the most successful traders. More details.

    Because fiscal policy is based on the government's ability to borrow money, there is a great risk that the economy could fall into deficit. However, it is important that the government maintain adequate resources to conduct its fiscal activities. If the government does not have enough money in the economy, it could result in a financial collapse or default.

    Limitations of the Fiscal Policy on a Country

    The financial policy of a country usually contains limitations on a country's debt as well as its borrowing capacity. Although this type of policy is normally considered to be a prerequisite to the international credit system, it should be noted that in certain situations it can act as an effective tool to limit the risks associated with borrowing from other countries.

    One of the most important limitations of the fiscal policy on a country is that it allows a country to borrow only in terms of the value of the currency of the country itself. In other words, a country can borrow only up to the value of its own currency. A country's borrowing capacity is then limited by its total debt as well as its total foreign debt.

    Another limitation of the fiscal policy on a country is that it restricts a country's borrowing capacity to the amount of money that it has in reserve. It is for this reason that a country cannot afford to borrow more than ten percent of the country's current GDP. This percentage is then used by the government to make payments to creditors when borrowing is not possible. In order for this amount to be exhausted, a government must be able to obtain an additional borrowing capacity from external sources like banks or other investors.

    Another limitation of the financial policy on a country is that it limits the amount of money that a country's borrowing capacity can borrow at one time. This limitation is often called the "debt ceiling." A country's borrowing capacity is limited because, if the limits are exceeded, the country would no longer be able to fulfill its obligations. The debt ceiling is therefore used as a tool to ensure that a country's debt is reduced. In case the debt ceiling is exceeded, the country would lose its status as a creditor.

    See also: Explore the infinite possibilities of online trading with a reliable broker. Join now!


    A third limitation of the fiscal policy on a country is that it limits the amount of money that a country can borrow at any one time. For instance, a country may only be allowed to borrow up to thirty percent of its GDP. The reason for this limitation is that if the limits are exceeded, a country would no longer be able to meet its obligations in a timely manner.

    In summary, a country's fiscal policy limits the level of borrowing capacity of a country. it also limits the amount of money that a country can borrow at one time. and limits the amount of money that a country is allowed to borrow during any given period of time.

    Though trading on financial markets involves high risk, it can still generate extra income in case you apply the right approach. By choosing a reliable broker such as InstaForex you get access to the international financial markets and open your way towards financial independence. You can sign up here.


  6. 0 user say Thank You to Danosahon for this useful post.
Reply to thread

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts