Fiscal policy is a powerful tool us by governments to influence the economy When Is Discretionary public spending. It aims to achieve various macroeconomic objectives such as economic growth, price stability, and full employment. However, the effectiveness of fiscal policy depends on the specific measures employ in response to prevailing economic conditions. The two main types of fiscal policy are expansionary and contractionary, each suit to address different economic challenges.
Transfer Payments: Governments may increase transfer payments, such as unemployment benefits or social welfare programs, to support households and maintain consumer spending during challenging economic times.
Expansionary Fiscal Policy – Boosting Economic Growth
Expansionary fiscal policy is implement to stimulate economic activity during periods of recession or slow growth. The key components of expansionary fiscal measures include:
Tax Cuts: By reducing tax rates or providing tax rebates, the government puts more money into the hands of consumers and businesses, encouraging increas spending and investment.
Increased Government Spending: Higher public Malta Business Email List expenditure on infrastructure projects, healthcare, education, and other essential services can create jobs and boost demand, leading to economic expansion.
Contractionary Fiscal Policy – Combating Inflation and Ensuring Fiscal Stability
Contractionary fiscal policy is deploy to control inflationary pressures and maintain fiscal discipline. Its primary elements include:
Reduction in Government Spending: By cutting spending on non-essential programs and services, the government can decrease overall demand in the economy, which helps combat demand-pull inflation.
Tax Hikes: Increasing taxes, especially on luxury AGB Directory goods and non-essential items, reduces disposable income, curtails consumer spending, and contributes to inflation control.