Fiscal policy is used to achieve government objectives using taxation, public spending and the budget deficit/surplus:
- Keynesian fiscal policy - demand-side fiscal policy uses increases in govt. spending and decrease in taxation to boost AD. Increase in govt. spending is an injection into the circular flow of income
- Discretionary fiscal policy - When fiscal policy is used to raise/lower taxes and government spending in otder to manage AD and maintain a high level of employment and avoid an increase in the rate of inflation
- Supply side fiscal policy - Tax cuts to increase incentives to work harder and increase LRAS through risk-taking and investment
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