Though the concept sounds great, it’s very rare you will hear a country getting surplus.The AD/AS Model, Adaptive Expectations, and the Phillips Curve Rate of Inflation Price Level LRAS P 112 P 108 P 104 P 100 SRAS 3 C SRAS 2 AD 3 B n n ( stable prices anticipated ) AD 2 Real GDP (a) Goods & Services Market n (natural rate of unemployment) 8 AD 1 n PC 1 SRAS 1 A YF Y 2 Long-Run Phillips Curve PC 2 4 0 B C ( 4% inflation anticipated ) A 0 3 5 7 Rate of Unemployment (b) Phillips Curve Framework We begin at full-employment output – YF (pt A in both frames).
spends less than what it earns, it creates a fiscal surplus. The government then needs to borrow the funds from external sources to maintain the balance. spends more than what it earns, it leads to the deficit. Fiscal Surplus and Fiscal Deficitīoth of these terms are important concepts of the fiscal policy. Similarly, changes to a particular tax slab would affect only the people falling in that category. But, if the spending is on the construction of dams, the benefit would reach to a larger group. For example, if the government spends more on defense projects, it would benefit only a few. The scope of the policy depends on the goals that the policymakers aim to achieve. Who All are Affected?įiscal policy may not benefit all the citizens in the same way. And, if there are any signs of inflation going out of control, the government must address it accordingly. So, it is very important for a government to monitor its fiscal policy constantly. On the one hand, more taxes means more income for the government, but it also results in less income in the hand of the people. Taxation includes taxes on income, property, sales, and investments.
Now that we know what is fiscal policy, let’s understand its objectives and types. So, the fiscal policy helps in controlling inflation, addressing unemployment along with ensuring the health of the currency in the international market.
0 kommentar(er)
