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Fiscal Policy Homework Help

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What is Fiscal Policy
The government is made of two things Expenditure and Income. When both are clubbed together it becomes Fiscal Policy. This is known as the Fiscal Policy of any economy. It runs either in surplus or in deficit.

Expenditure happens when there are facilities that are improved and the government earns when there are taxes on them.

 

What are the Methods of Funding Money?
The government has various ways by which it borrows money. They are:

1) Taxes: This is the simplest way to get money. Taxes are compulsory to pay and this is how the government can get money for its expenditure.

2) Sales: By selling assets of the government which is of no use to them is also another way of getting money. Those assets can be useful to some other company or economy.

3) Seigniorage: This can be explained in a simple way that states the money that is obtained while printing money. This is government income which becomes a part of the fiscal policy.

4) Surplus: the reserves of the fiscal policy also can be served as a part of the income-generating source. This money is also what the government can use to benefit the economy.

5) Borrowings: the money that is borrowed domestically and on international platforms serves as a part of the fiscal policy. But when this is used to obtain money then the interest rates are so high that the policy will start having a deficit

 

Understanding the Concept of borrowing
When we say borrowing then there are various ways by which an economy gets the money.

When a government borrows money then there are procedures by which the money is raised.

It includes various treasury bills and bonds. The government gets money from the interest that is liable to the bill and it gives a financial backup to the fiscal policy.

 

What are the Factors Affecting Fiscal Policy


Like every other thing, fiscal policy is also affected by many factors. They are:

a) Aggregate Demand

b) Aggregate Supply

c) Money Supply and Demand

d) Income

e) Savings

f) Interest rates as well

 

The above factors have to be taken into consideration while drafting the fiscal policy. As taxes become one way to get money they should neither be too rigid nor too loose.

Thus the government must check that the fiscal policy always has a surplus and that money is utilized for the benefit of the masses.

 

Fiscal Policy Homework Help