List of Goals
Fiscal policy is utilised by governments to influence the aggregate demand (AD level) to achieve its macroeconomic objectives:
- Low and stable inflation.
- Low unemployment.
- Promote a stable economic environment for long-term growth.
- Reduce business cycle fluctuations.
- Equitable distribution of income.
- External balance.
Low and Stable Inflation
- Fiscal policies change the income taxes and government spending, causing the aggregate demand to shift respectively.
- This policy is used often when there is high inflation.
- The policy increases income taxes and lowers government spending to lower the aggregate demand, reducing inflation rates.
- Therefore, fiscal policies help maintain a low and stable inflation rate.
Opposed to monetary policy, fiscal policy does not have a inflation target, hence it may be used to support monetary policy when the monetary policy fails to address inflation problems.
Low Unemployment
- By influencing aggregate demand (AD), the fiscal policy may attempt to reduce cyclical unemployment (which occurs because of lack of aggregate demand).
