Besides lowering taxes, in what other way can the government apply fiscal policy to help the local economy?

1 Answer | Add Yours

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Fiscal policy generally has two aspects to it.  The government can change the level of taxation or it can change the amount of money that it is spending.  This means that, outside of lowering taxes, the government can increase the amount of money it spends if it wants to help the economy to grow.

Governments spend a lot of money.  They hire people to do all sorts of things.  Some of these are actual government employees.  Teachers are one example of this.  So the government could, for example, do something like reducing class sizes and hiring more teachers as a way of increasing spending.  Other people who are hired by the government to do things are not government employees.  Instead, they are employees of companies that the government hires.  For example, the government could hire a contractor to build a new government building.  It could also hire contractors to build roads.  In both cases, the government would be causing more people to have jobs and to get paid.  These actions would tend to increase the amount of money available to consumers, thus increasing aggregate demand and helping the economy.

We’ve answered 318,915 questions. We can answer yours, too.

Ask a question