Discuss the Ways in Which the Government May Use Fiscal...

‘Discuss the ways in which the government may use Fiscal policy to help the economy grow out of a recession. Reference must be made to some policies that the current government has actually use’ Fiscal policy involves the use of government spending, taxation and borrowing to affect the level and growth of aggregate demand, output and jobs. Fiscal policy is also used to change the pattern of spending on goods and services. It is also a means by which a redistribution of income amp; wealth can be achieved. It is an instrument of intervention to correct for free-market failures. Changes in fiscal policy affect aggregate demand (AD) and aggregate supply (AS). In the UK, the Treasury (pictured right) is in charge of fiscal policy decisions†¦show more content†¦National insurance contributions are the closest example in the UK of a proportional tax, although low-income earners do not pay NICs below an income threshold. A regressive tax is the rate of tax falls as incomes rise – I.e. the average rate of tax is lower for people of higher incomes. In the UK, regressive taxes come from excise duties of items of spending such as cigarettes and alcohol. Indirect taxes fo rma larger percentage of the disposable income of those who earn less, even though they may also spend less. How the current government is using fiscal policy. The current collation government are using fiscal policy to attempt to cut down borrowing and the budget deficit from previous borrowing of the recent labour governments to be in power. The Coalition Government wants to halve the budget deficit over a five year period, they have launched a programme of fiscal austerity amounting to  £126 billion a year of combined spending cuts and tax rises. Most of the fiscal austerity is coming through planned reductions in the real level of government spending. 80% will come from spending reductions, 20% is forecast to come from higher taxes. The â€Å"fiscal squeeze† is highly controversial and has led to an impassioned debate among economists about the best way to control a budget deficit as an economy struggles to lift itself out of recession and sustain a recovery. Keynesian economists argue that deficit-reduction policies risk driving the economy into a second recessionShow MoreRelatedFiscal Policy And Monetary Policy862 Words   |   4 PagesFiscal Policy vs Monetary Policy Fiscal policy is a way for the government to control the economy financially. The Federal Government sometimes partakes in actions to stimulate the economy. Fiscal Policy focuses on changing government spending, controlling inflation, encouraging economic growth, and to reach full employment. Monetary policy is a policy the Federal Reserve Board enforces which consists of changes in the money supply which influences the interest rates in the economy. 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