What monetary and fiscal policies might be prescribed for an economy in a deep recession?
What might a high dividend-payout ratio suggest to an analyst about a company's growth prospects?
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
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 in the reverse situation, there can be increase in taxes.
USE OF MONETARY POLICY
The Federal Reserve controls the three tools of monetary policy--open market operations, the discount rate, and reserve requirements. The term "monetary policy" refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.
The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market ...
This solution explains what a high dividend payout ratio would suggest about growth prospects of a company, addressing mobilization of resources, acceleration of economic growth and minimizing inequalities.