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Explanation KF Saa34rw
Explanation KF Saa34rw
Should the government use its fiscal policy to influence demand in the economy then it
needs to choose either expenditure changes or tax changes, as its policy instruments,
Increase demand by directly spending more itself, for example, future investment
and spending on the health service or employing more people. If the government was to
influence demand by spending more, this would have to be financed either through
Increase demand indirectly by reducing taxation - Tax cuts are often followed by
cuts in government spending. Therefore, total demand will not be stimulated within the
borrowing. Should the government decide to lower tax then organisations, households
and individuals would have more money after tax thus have the ability to spend more.
When the government is running a budget deficit it means that total public expenditure
exceeds revenue. As a result, the government has to borrow through the issue of
government debt.
If the government sector is taking in more revenue than it is spending, there is a budget
surplus allowing the government to repay some of the accumulated debt, of perhaps