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Fiscal Policy - College Term Papers

Fiscal Policy

The governments attempt to influence the economy by setting and changing taxes, making transfer payments, and purchasing goods and services is called fiscal policy. ( Parkin et al.2008 pg 517 .The fiscal policy is usually controlled by government and makes decisions mainly based on whether the country is in a recession or an expansion within the business cycle. Changes in fiscal policy are brought about when the minister of finance gives indications as to the future of government spending and taxes for the financial year. The change in government spending significantly impacts the aggregate production income of the country, employment levels, price level and income distribution. The purpose ...

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GDP. When this output gap is negative, An Okun Gap occurs. ( Economics Parkin et al. 2008, pp 455). The price level is a overall measure of relative changes in the prices of individual goods and services in a specific area. The relationship between the quantity of real GDP and the price level is called the aggregate demand and is illustrated using the aggregate demand curve (AD). A change in any factor that influences buying plans other than the price level which will lead to an increase in aggregate demand will shift the aggregate demand curve rightward (Parkin et al. 2008, pp 517)

The quantity of real GDP supplied in a given period at a certain price level is called Aggregate Supply and this is shown using the Long-run aggregate supply and short run aggregate supply curves.

Aggregate expenditure is the sum of all planned consumption expenditure (C), investment (I), government expenditure (G) and exports (X) and minus imports (M). AE = C+I+G+(X-M) This is ...

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PAPER DETAILS

Added: 3/27/2011 02:57:40 PM
Submitted By: pandor07
Category: Economics
Type: Premium Paper
Words: 951
Pages: 4

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