To explain fiscal policy, we need to think of a financial infrastructure that was implemented to let the economy stay on the flow. In other words, fiscal policy is the governmental process of helping the economy keep running smoothly. Most of you are already well aware of taxes as one of the major components (we all pay them), to define fiscal policy we should also consider some other factors within actually any legislative move made by the government to give the economy a boost.
In this article, you will find out what is fiscal policy and how it can be implemented by the government. We will also discuss some of its core components as well as ways it differs from monetary policy.
Fiscal policy at its core is the legislative process or actions taken by the government to regulate or drive the economy. The main mission is to achieve rapid growth and scalability through a set of conventional tools that generally include taxation and sending. The idea of fiscal policy was introduced by the British economist John Maynard Keynes as a concept that affects various macroeconomic factors including growth, performance inflation, supply and demand, employment rate, and other crucial points.
The main idea of fiscal policy is not just to improve the economy but to prevent it from operating under extreme conditions (for example, recession or uncontrolled growth). It is the policy of economic optimization and stabilization. It helps to keep business cycles under control and regulate the financial market as well.
Government has two baseline instruments that help it to achieve primary fiscal policy goals. They are as follows:
The more the government spends the higher chances of pouring more cash back into the country’s economy. As a result, it increased the demand for specific goods produced by private sectors and service providers.
To run the economy properly, the government generally has two major instruments. They include fiscal and monetary policies. Although they might seem similar at first sight, they have some crucial differences:
Although they utilize different tools, both policies follow the one and only goal of improving the economic situation and keep it running like a well-oiled machine.
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