Question

Can we do without a Fiscal Policy?

Answer 1

The policy of the government regarding public expenditure, revenue and borrowing is called fiscal policy. When the economy experiences cyclical fluctuations the government uses fiscal policy to stabilize the economy. It is an important tool for managing the economy because of its ability to affect the total amount of output produced—that is, gross domestic product.The government can intervene in the economy and achieve stability by using fiscal instruments of taxation and government expenditure. Taxation will reduce the disposable income of the people and thereby reduce their consumption expenditure . If the government does not spend the entire tax revenue this will have the impact of reducing aggregate demand. This policy is implemented during boom and inflation. We can say that it is the monitor by which the government adjusts its spending levels and tax rates. Taxation can stabilize the economy lessening the gap between the rich and poor.When the economy is in recession the government takes measures to increase public expenditure. Thus, the problems of recession are solved.

Let's think if we can do without fiscal policy. The various fiscal measures a country employs facilitate expansion of the national economy. For example, when the government reduces tax rates, businesses and individuals will have a greater incentive to invest and steer the economy forward.If inflation gets too high, a government can use fiscal policy to help curb it. One way would be to increase taxes to eliminate money from the economy. Another method to decrease the money circulating in the economy would be to limit government spending. So fiscal ,policy is needed and demanded, but it should be fine tuned, unless there is a fiscal policy the country may not have a healthy development.