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effects of the changes in fiscal policy

What were the effects of the changes in fiscal policy in the simulation - Explain what happened in the simulation as you raised and lowered spending and income tax rates

Describe how inflation, unemployment, and popularity were affected by at least three different configurations of spending and taxation. For example one configuration could be high taxes, low spending on infrastructure, and medium spending on education.

What fiscal policies need to be in place to balance the ideals of lower inflation, lower unemployment, and increased popularity?

Solution Preview

Fiscal policy refers to nation's policy relating to the government spending, taxing, borrowing and debt management. The main objectives of the fiscal policy are:
1. Mobilization of resources
2. Acceleration of the economic growth
3. To minimize the inequalities of Income and Wealth.
There are three main constituents of the fiscal policy, these are:
1. Taxation policy
2. Public Expenditure policy
3. Public debt policy
All these constituents must work together to make the fiscal policy sound and effective
TAXATION POLICY
The main objectives for which taxes are levied is to raise revenue by transferring resources from the public to government and the opposite applies when the government cut the taxes so that some resources are transferred from the government to public. It will depend on the tax system that how much it has impact on the economy. The characteristics of good tax system are:
Equity in distribution of tax burden
1. It should yield a satisfactory amount for the maintenance of a government.
2. It should maximize social benefit that is redistribution of wealth and reducing the inequalities of income.

Therefore in the situation of recession the tax credit and tax cuts will increase the disposable income and hence increase the overall production of the economy and vice verca.

Public Expenditure
It is the most potent weapon to raise the consumption and to increase the economic growth. Increased government expenditure will ...

Solution Summary

This job lists main constituents of the fiscal policy.

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