Fiscal Policy Essay

730 WordsDec 7, 20123 Pages
Fiscal Policy Paper ECO 212 Fiscal Policy Paper The economy fluctuations in today’s world have become one of the most important factors in determining the direction of an economy growth. Non-stable economy can harm and slow the development and growing rate of a nation. There are many tools to stabilize the economy and reduce the frequency and the altitude of economic fluctuations. Among these tools are the fiscal policy and monetary policy. This report discusses the fiscal policy and why the governments use this too to stabilize the economy and encounter the economic fluctuations. Fiscal policy is the process the government uses to determine the appropriate level of taxes and spending necessary to deal with recessions, inflation, and unemployment. In fiscal year 2010, the federal government is projected to spend $3.6 trillion, amounting to 24 percent of the nation’s Gross Domestic Product. While the level of 2010 expenditures as a share of GDP exceeds those of recent years, the composition of the budget largely resembles the patterns of recent years. Of that $3.6 trillion, almost $2.2 trillion will be financed by federal tax revenues. The remaining $1.4 trillion will be financed by borrowing; this deficit will ultimately be paid for by future taxpayers. The government also use tax allowances to stimulate increases in research and development and encourage more business start-ups. A favourable tax regime could also be attractive to inflows of foreign direct investment a stimulus to the economy that might benefit both aggregate demand and supply. The economy is often touted as an example of substantial cuts in the rate of corporation tax can act as a magnet for large amounts of inward investment. The very low rates of company tax have been influential although it is not the only factor that has underpinned the sensational rates of economic growth enjoyed by

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