Fiscal Policy


260

One of Keynes’s main ideas in The General Theory of Employment, Interest and Money was that government fiscal policy should be used to stabilise the level of output and employment.

Through changes in its expenditure and taxes, the government attempts to increase output and income and seeks to stabilise the ups and downs in the economy. In the process, fiscal policy creates –

  • a surplus (when total receipts exceed expenditure) or
  • a deficit budget (when total expenditure exceed receipts) or
  • a balanced budget (when expenditure equals receipts).

The government directly affects the level of equilibrium income in two specific ways – government purchases of goods and services (G) increase aggregate demand and taxes, and transfers affect the relation between income (Y) and disposable income (YD) – the income available for consumption and saving with the households.

.

Bibliography : NCERT – Introductory Macroeconomics

.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s