Fiscal Policy
Fiscal policy consists in managing the national Budget and its financing so as to influence economic activity. This entails the expansion or contraction of government expenditures related to specific government programs such as building roads or infrastructure, military expenditures and social welfare programs. It also includes the raising of taxes to finance government expenditures and the raising of debt (Treasuries in the U.S.) to bridge the gap (Budget deficit) between revenues (tax receipts) and expenditures related to the implementation of government programs. Raising taxes and reducing the Budget Deficit is deemed to be a restrictive fiscal policy as it would reduce aggregate demand and slow down GDP growth. Lowering taxes and increasing the Budget Deficit is considered an expansive fiscal policy that would increase aggregate demand and stimulate the economy.
Read more about this topic: Macroeconomic Policy Instruments
Famous quotes containing the word policy:
“Letting a hundred flowers blossom and a hundred schools of thought contend is the policy for promoting the progress of the arts and the sciences and a flourishing culture in our land.”
—Mao Zedong (1893–1976)