FISCAL POLICY

Fiscal Policy: Government Expenditures and Revenues, Budget, National Debt

Fiscal Policy: Government Expenditures and Revenues, Budget, National Debt

Question 1:

Individual income taxes and salaried taxes contribute 82 % of all federal sources of revenues in fiscal year. Corporate income taxes account 9%. Estate, excise taxes and customs duties, and gift taxes, miscellaneous receipts (paychecks of the Federal Budgetary Reserve System and various charges and fees) makes the balance. The structure composition of tax revenue has changed dramatically over the history. The portion coming from individual income taxes has persisted roughly stable, while payroll taxes have contributed for a larger share and corporate income and excise taxes smaller shares (David, 1995).

Question 2:

The three major categories of expenditures for the federal government are:

Defense,

Medicare

Welfare

Government expenditures or spending are those expenses which are remunerated for salaries to government employees, old aged pensions to retired employees, roadways, building of railways, bridge, electricity, education, schools, defense, health care, hospitals, welfare of poor etc. In USA, the summary of major government spending is given below according to their ranking:

Question 3:

In order to decrease the deficit the president can change the tax rates that are indirectly attached to the public. Other method can be that reduce the subsidy that is provided to the public. This decision is very critical to take and president must think before making decision.

Question 4:

Describe the AD, AS equilibrium point.

An important indicator in the AD-AS model is the aggregate demand curve. This feature explains the sum of all possible demand macroeconomic agents: households, firms, government and foreign sector. Thus, aggregate demand is constructed from the sum of the following indicators:

Consumer spending - household demand for goods and services

Investments - the demand of firms for goods and services to maximize their own profits in the future

Government purchases of goods and services - state costs by criteria such as salaries to civil servants, purchase of equipment for government departments, etc.

Net exports - the difference between exports and imports from country to country

Aggregate demand function is constructed as the sum of all these four parameters. Mathematical language,

There are three main explanatory effects. First, put forward by the French economist Arthur Pigou, states that an increase in the general price level decreases the real wealth of man, which leads to a decrease in consumption of goods and services by households, which, respectively, leads to a decrease in the value of aggregate demand. John Maynard Keynes thought otherwise. He suggested that an increase in the price level naturally increases the demand for money. This leads to an increase in bank interest rates, because the increased demand for borrowed funds. From the high interest rates investors are suffering, which leads to a decrease in investment in the economy, and hence the magnitude of aggregate demand. More modern economists, Robert Mundell and John Fleming, considered that an increase in the price level falls in the country of export as well as national products, in this case, become more expensive for foreigners and for locals, which, in turn, leads to an ...