fisical policy

by riza
 fisical policy is the use of taxation and government spending to
fisical policy
manage is the usedemand
aggragate of taxation and government
in order spending
to acheive the to manage aggragate deman
governments
acheive the governments
macroeconomic changemacroeconomic change
Budget
budgetis an annual
is an statement
annual in in
statement which thethe
which government outlines
government plans
outlines for its spending a
plans
for its spending and tax revenue
Budget surplus — revenue exceeding expenditure
budget surplus — revenue exceeding expenditure
and budget deficit
budget deficit — expenditure exceeding revenue
cylical and structural budget deficit
national debt is the total amount of government debt it is often expressed as a
percentage of GDP
two types of taxes — indirect and direct
indirect taxes are on the sale of goods and services
direct taxes are on income and wealth
types of taxes — regressive, progressive and proportional
regressive tax is a tax which takes a lareger percentage of the income or wealth of
those on low income
progressive tax is one that takes a higher percentage of a person or firm’s income
as that income rises
proportional tax is a tax whuch takes the same percentage of the income or wealth
of all income groups
Reasons for taxation

to raise revenue to finance government spending on merit goods such as

education, and public goods such as defence
to influence aggregate demand
progressive tax can be used to disturbute income more evenly
can be used to discourage consumption of demerit goods
Government spending
current government spending is on goods and services
capital government spending is on investment
exhaustive government spending which makes use of resources
non-exhaustive government spending which allows others to decide how
resources are used
Expansionary and contracationary fiscal policy

expansionary fiscal policy is increases in government spending and cuts in

taxes designed to increase aggregate demand
contractionary fiscal policy is decreases in government spending and increases
in taxes designed to reduce the growth of aggragate demand
discreationary fiscal policy are deliberate changes in government spending and
taxation
Automatic stabilisers are changes in government spending and taxation that
occur to reduce fluctuations in aggregate demand without any alteration in
government policy

the automatic stabilisation

governments mays use contactionary fiscal policy tools to reduce demand pull inflation.

income tax rates may be increased, the threshold at which people start paying the tax may
be reduced and the tax base may be widened

however raising income tax to reduce demand pull inflation may not go ahead as planned
this is because workers may seek higher wages to maintain their disposable income.

expansionary fiscal policy may be used to increase the country’s output and to raise
unemployment
thank you!