The Federal Reserve uses a variety of policy tools to foster its statutory objectives of maximum employment and price stability. Its main policy tools is the target for the federal funds rate the rate that banks charge each other for short-term loansa key short-term interest rate.
Read more Fiscal policy Fiscal policy is the deliberate alteration of government spending or taxation to help achieve desirable macro-economic objectives by changing the level and composition of aggregate demand AD.
Types of fiscal policy There are two types of fiscal policy, discretionary and automatic. Discretionary Discretionary policy refers to policies which are decided, and implemented, by one-off policy changes. Automatic Automatic stabilisation, where the economy can be stabilised by processes called fiscal drag and fiscal boost.
Fiscal drag means that, as incomes rise, the impact of rising incomes for the better off is reduced as they pay proportionately higher taxes, and the impact of rising incomes on the poor and unemployed is reduced as they come off benefits, and start to pay tax.
The effect is that the increase in disposable income is moderated. Fiscal boost Similarly, a potentially rapid and deep decrease in national income would be prevented by fiscal boost.
Fiscal boost means as incomes fall in a recession the impact of falling incomes for the better off is softened as they pay proportionately lower taxes, and retain more post-tax income.
The impact of falling income is to increase unemploymentbut rather than experience a complete collapse in personal income, the unemployed, and the poor, receive benefits, and spend more than they would have without such benefits.
Government expenditure Central and local government — the public sector - spends money for a variety of reasons, including: To supply goods and services that the private sector would fail to do, such as public goodsincluding defence, roads and bridges; merit goodssuch as hospitals and schools; and welfare payments and benefits, including unemployment and disability benefit.
To achieve supply-side improvements in the macro-economy, such as spending on education and training to improve labour productivity. To inject extra spending into the macro-economy, so as to achieve increases in aggregate demand and economic activity.
To reduce the negative effects of externalitiessuch as setting pollution limits. To subsidise industries that may need, for one reason or another financial support which would not be available from the private sector.
To help redistribute income and achieve more equity. Local government is very important in terms of the administration of spending. For example, spending on the NHS and education are administered locally, though local authorities.
Debt interest has increased over the medium-term as a result of higher public sector debt. Central government borrowing If revenue is insufficient to pay for expenditure, there will be a fiscal deficit. In this situation, government must borrow by selling long term bonds or short term bills.
Bonds are long-term securities that pay a fixed rate of return over a long period until maturity, such as 10 years after they are originally issued, and are bought by financial institutions looking for a safe return. Government can also sell Treasury Billswhich are issued into the money markets to help raise short-term cash.
Bills have a life of 90 days only, whereupon they are repaid. Local government borrowing Local authorities can also borrow if their combined revenue from the Council Tax and central government support is insufficient to meet local spending.
If the borrowing requirements of both central and local government are combined, the amount of borrowing is called the public sector net cash requirement PSNCR. Fiscal deficits vary with the business cycle.
During periods of economic growth, tax yields rise, and spending on welfare payments fall, pushing the public finances towards a surplus. During periods of economic slowdown, tax yields fall and welfare payments rise, pushing the economy towards a fiscal deficit.
Fiscal rules The first fiscal rule, the golden rule for borrowing- established in by the then Chancellor Gordon Brown - was that the government should balance its books over a trade cycle, and only to borrow to fund capital projects, such as road building.
These rules were relaxed in by Chancellor Alistair Darling, to enable planned spending brought forward in an attempt to inject spending into the ailing UK economy. The coalition government, which came to power inabandoned these fiscal rules as it became clear that they possessed little credibility at a time of accelerating public debt.
In an attempt to return some order to public finances, the coalition government launched the Office of Budget Responsibility OBR.
Public sector spending Using public spending to stimulate economic activity has been a key option for successive governments since Keynes. Keynes argued that public spending should be increased at times of recession to compensate for falling private spending. There are two types of spending: Current spending, which is expenditure on wages and raw materials.
Current spending is short term, and has to be renewed each year. Capital spending, which is spending on physical assets like roads, bridges, hospital buildings, and equipment.The UK government uses both Fiscal and Monetary Policy in its control of the economy: Analysis and Discussion.
‘The Business Environment Report’ submitted to The College of Technology London. Fiscal policy is an economic policy by which a government adjust its level of spending in order to monitor and influence a nation's economy.
Fiscal policy refers how the government use the budget to affect economic activity, allocation of resources and the distribution of . Aggregate demand is a macro-economic concept representing the total demand for goods and services in an economy.
This value is often used as a measure of economic well-being or growth. Fiscal. Fiscal policy. Fiscal policy is the deliberate alteration of government spending or taxation to help achieve desirable macro-economic objectives by changing the level and composition of aggregate demand (AD).
Types of fiscal policy. There are two types of fiscal policy, discretionary and automatic. Explain what is meant by this statement and discuss specific fiscal measures that the UK government has implemented in recent years to influence economic activity in the built environment.
Definitions: The UK government uses both fiscal and monetary policy in its control of the economy. Fiscal policy refers to any uses of the government budget to affect the economy.
This includes government spending and levied taxes. Policy is said to be expansionary when spending increases or.