On the right side are the sources of aggregate spending or demand-private consumption ( C), private investment ( I), purchases of goods and services by the government ( G), and exports minus imports (net exports, NX). On the left side is GDP-the value of all final goods and services produced in the economy. A basic equation of national income accounting that measures the output of an economy-or gross domestic product (GDP)-according to expenditures helps show how this happens: Governments directly and indirectly influence the way resources are used in the economy. Governments influence the economy by changing the level and types of taxes, the extent and composition of spending, and the degree and form of borrowing. Central banks indirectly target activity by influencing the money supply through adjustments to interest rates, bank reserve requirements, and the purchase and sale of government securities and foreign exchange. When policymakers seek to influence the economy, they have two main tools at their disposal- monetary policy and fiscal policy. More recently, countries had scaled back the size and function of government-with markets taking on an enhanced role in the allocation of goods and services-but when the global financial crisis threatened worldwide recession, many countries returned to a more active fiscal policy. With the stock market crash and the Great Depression, policymakers pushed for governments to play a more proactive role in the economy. Before 1930, an approach of limited government, or laissez-faire, prevailed. Historically, the prominence of fiscal policy as a policy tool has waxed and waned. In the communiqué following their London summit in April 2009, leaders of the Group of 20 industrial and emerging market countries stated that they were undertaking “unprecedented and concerted fiscal expansion.” What did they mean by fiscal expansion? And, more generally, how can fiscal tools provide a boost to the world economy? The role and objectives of fiscal policy gained prominence during the recent global economic crisis, when governments stepped in to support financial systems, jump-start growth, and mitigate the impact of the crisis on vulnerable groups. Governments typically use fiscal policy to promote strong and sustainable growth and reduce poverty. Governments use spending and taxing powers to promote stable and sustainable growthįiscal policy is the use of government spending and taxation to influence the economy. 5 min (1403 words) Read BACK T O BASICS COMPILATION
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |