• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Fiscal Policy

Extracts from this document...

Introduction

Fiscal policy is the manipulation of government spending (G) and level of taxation while monetary policy is the adjustment of interest rates. Both are meant to influence the movement of AD First, Monetary Policy Committee (MPC) can consider a cut in interest rates. With cheaper borrowing, households will be induced to borrow even more to spend. Rise in consumption (C) will shift AD rightward thereby promoting higher economic growth. To produce more goods and services, more manpower will be required. This leads to lower unemployment. At the same time, lower rates will lead to outflow of money. ...read more.

Middle

In theory, with more money in hand, working people will have greater tendency to spend into the economy. This will give retail sales a further boost. At the same time, rise in consumption will contribute to increase in AD hence economic growth. In such period, prospects for average earnings will likely improve since real GDP per capita has increased. As such, the second imbalances which is booming retail sales but sluggish growth of average earnings is said to be resolved It is worth to note that a slash in interest rates may not even work to solve the first imbalances. ...read more.

Conclusion

Subsidies from UK government would be better. It can be spent onto identified 'desperate' industries across the nation. It promotes not only job creations but also ensure the survival of factories Income tax cut has many problems too. It cannot be manipulated frequently, just once a year during the Budget. Unlike monetary policy, it has greater flexibility and responsiveness since MPC members meet every first week of the month. Decision on interest rates will be made public a day after. It is also worth to note changes in the direction of income tax are politically sensitive. It is always easier to cut than to raise income tax rates. There will be times, when politicians need to raise tax once again, especially when the budget deficit is ballooning ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Macroeconomics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Macroeconomics essays

  1. How have the Rates of Inflation in the UK Changed Since the Monetary Policy ...

    This can be explained through an example; if employees expect there is going to be 10% inflation over the next year they are going to demand at least a 10% wage increase, employers give in to this and pass on the 10% in the form of a 10% price increase.

  2. Budget 2004-05 and Economic Analysis of Pakistan

    of 3.5 percent and a slight increase of 0.4 percent last year. The performance of two major crops, cotton and wheat, was lackluster as the cotton crop suffered from pest problems in southern Punjab while wheat production was adversely affected by lack of rain in March when the formation of wheat grain takes place.

  1. Comparing the effects of immigration on GDP in Malaysia, Japan and South Africa.

    In this globalization and interdependent world, immigrants' global connections will actually assist Japan to have stronger political ties among the immigrants' countries. 7.3 Social One of the social advantages of having immigrants in the country is diversity. Diversity means the interaction between two individuals from different backgrounds and cultures.

  2. the limitations of Fiscal Policy

    the socialist won the elections, there would have big changes in the macroeconomic and microeconomic policy especially fiscal policy and changes in government goals. Indonesia is one of the countries that have changed its government goal over the past decades.

  1. Fiscal policy is a macroeconomic policy.

    The two main automatic stabilisers are: Unemployment benefit: when economy moves into recession, the level of economic activity falls, causing rise in unemployment, leads to greater government expenditure on unemployment benefit. Thus a decline in the level of economic activity automatically leads to an increase in government expenditure.

  2. Using Fiscal Policy to Improve Employment.

    There is a loss of output to the economy. Unemployed people are not earning and they therefore aren't paying tax. This causes a loss of tax revenue. We already know it increases government expenditure when the government has to pay out benefits to support the unemployed.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work