Custom essays: Evaluation of the impact of the fiscal policy

To see if it the government’s fiscal policy is effective it is necessary to evaluate its results. I most cases it is necessary to see the changes in government’s budget, since the implementation of fiscal policy accompanied by an increase or reduction of budget deficits or surpluses. In the case of Erehwon, after the fiscal policy had been exercised, the budget deficit began to decline both in absolute terms and as percentage to GDP.
These decisions helped to bring down the inflation to 5%, that is a good level of indicator. But on the other hand, the rate of unemployment increased to 4,7%.
In general fiscal policy and implemented decisions has helped to put the economy of Erehwon on the right track. The changes in the government expenditures, as well as in the taxation policy will help to achieve good results in the long run. Later, these steps will help to increase the rate of Gross Domestic Product, as well as increase the real income, and also decrease of the unemployment rate.
Although fiscal policy is an effective instrument of regulation of economy, but it is characterized by the following negative aspects:
-fiscal policy is only effective in the short term,
– there are contradictions between the directions of changes in taxes and government spending, carried out in order to achieve macroeconomic stability and other objectives facing society (defense, environment, social issues);
– the presence of “delay effect”. (Sheffrin 2003)

If we speak about the impact of fiscal policy on mortgage banking, we should distinguish two types of state policy in the direction of mortgage banking: restriction policy and the policy of expansion. RFLP (restrictive) monetary policy (the so-called policy of “dear money”) is aimed at tightening conditions and limit the amount of commercial lending operations FIR banks and raising interest rates. Its implementation also typically requires and is accompanied by increased taxes, reduced public expenditure, as well as other activities aimed at overcoming inflation. Restriction fiscal policy can be used not only for combating inflation, but also to smooth out cyclical fluctuations in business activity.
Expansionary monetary policy is accompanied by the expansion of credit, weakening of control over growth in the amount of money in circulation, decreasing the rate of interest. This system method is also called the policy of cheap money.

Conclusion
As the largest economic reality, covering all spheres of life, change in government spending and taxes is an important way to influence economic outcomes. This raises the possibility of using fiscal policy to stabilize the economy. When the economy is in recession, it is necessary to expand production by reducing taxes or government spending.
In practice, fiscal policy is being actively used in order to stabilize the economy. Expansion of public spending and tax cuts is applied when it is necessary to get the economy out of crisis and recession.
Even under those circumstances, that in the real economy there are some things that reduce the effectiveness of fiscal policy, it provides opportunity for the government to regulate some economic processes, and in some way to smooth fluctuations in economic cycles. It is an extremely powerful, and therefore dangerous tool. It enables to get out of a deep crisis, but also can lead to sad alternative – deepening of negative trends prevailing in the market system. Only a very well-informed decisions taken at the highest management level will give positive results, after a serious analysis of the situation, considering alternative ways of fiscal policy on the economy of the state.

References

International Monetary Fund ( 2008). “Fiscal Policy as a Countercyclical Tool”. World Economic Outlook 2008. Washington: International Monetary Fund.
Freedman C, Kumhof M., Laxton D., Lee J. (2009). The case for global fiscal stimulus. International monetary fund.
Sheffrin Steven M.. (2003). Economics: Principles in action. Pearson Prentice Hall.