Government Macro Intervention

Fiscal policy

This policy refers to the manipulation of government spending and tax rates in order to achieve some desired macroeconomic objectives.

Expansionary Fiscal Policy

• An increase in government spending and/or a decrease in tax rates
• It aims to increase aggregate demand in order to increase national income and employment
• A rise in government spending will directly increase aggregate demand, as it is a component of this.
• A decrease in taxes will indirectly increase aggregate demand as it will increase disposable income that people have which will encourage more spending

Contractionary Fiscal Policy

Contractionary fiscal policy involves a cut in government expenditure or an increase…