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The Advantages And Disadvantages Of Fiscal Policy

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Fiscal policy can be known as the adjustment of government towards their spending levels and tax rates to control and influence a nation’s economy or aggregate demand (AD). Aggregate demand is the total level of planned expenditure in an economy. Fiscal policy is the sister strategy to monetary policy through which a central bank influences a nation’s money supply. The purpose of fiscal policy is to boost economic growth in a period of recession. These policies can be used in various combinations to help the country achieve economy goals. The purpose of fiscal policy is to boosts economic growth in a period of recession. By using fiscal policy, the advantage is it can essentially affect the national income and consequently have immediate effect on the economy. Besides that, taxes on negative externalities can decrease consumption of negative externalities or demerit goods. This will urge them not to spend the extra money on the unnecessary needs. Whereas, subsidizing merit goods may increase the consumption. Government can direct spending towards specific projects or etc. Another advantage is taxation. Tax will cuts on wages to encourage people to work. This will directly shift the long run aggregated supply curve to right. Different rate of taxes on different levels of income also can reduce gap between the rich and poor. Therefore, fiscal policy not only can control aggregated demand, it also can benefit the society in long term.
However, fiscal policy also consists of
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