Governments use fiscal policy instruments to control economies, including expenditure policies and revenue generation plans. These tools can stimulate growth, fight inflation, and impact other countries through tariffs. Widely used instruments include loan programs, unemployment insurance, job creation programs, and tax breaks.
Governments use fiscal policy instruments to try to control local, national and even international economies. Policy instruments fall into two main categories: expenditure policies and revenue generation plans. The former includes initiatives aimed at bolstering consumer or business lending, as well as plans to raise living standards by pumping money into development and revitalization projects, while the latter includes various types of taxes and tariffs that governments levy on consumers and businesses. commercials.
Growth occurs when spending increases and the economy expands, but for growth to occur, consumers and businesses need access to credit. Widely used fiscal policy instruments designed to encourage growth include government-backed loan programs. In many cases, governments finance or guarantee mortgages for consumers with the intention of making these loans more accessible to people living on modest budgets. When home finance options become more readily available, competition for affordable homes increases and this causes prices to rise. Subsidies and tax breaks are also sometimes given to potential homeowners; these fiscal policy instruments also raise house prices and that generates growth.
During periods of inflation, high levels of unemployment can inhibit economic growth. Consequently, many governments fund unemployment insurance programs designed to ensure that consumers have enough money to cover their living costs even while unemployed. These programs help not only the beneficiaries but also the economy in general, because the money these people spend generates profits for private companies. Profitable companies tend to expand to maximize profits, and expansion often takes the form of job creation. Therefore, widely used fiscal policy instruments include job creation programs and plans that provide companies with low-cost loans and tax breaks.
In addition to trying to stimulate growth, fiscal policy instruments can also be used to fight inflation. Governments generate revenue but assess various taxes on businesses and consumers. As taxes rise, discretionary spending declines as consumers need to spend a larger percentage of their money on everyday essentials. Likewise, taxes also affect businesses, which means that governments can use these fiscal policy tools to stop overly aggressive companies from expanding too quickly.
Fiscal policy tools affect the domestic economy, but tariffs are tools that can impact the economy in other countries. Tariffs are usually imposed on imported goods, and as tariffs rise, the cost of buying goods abroad increases. Foreign producers need to raise prices to cover the cost of these taxes or eliminate other expenses. If these companies raise prices, tariffs will create inflation, but if they reduce costs, tariffs could result in job losses abroad. Tariffs are therefore among the fiscal policy tools that have the most far-reaching impact.
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