Fiscal policy
We have now looked at the 5 different macroeconomic objectives of governments (low and stable inflation, low unemployment, stable economic growth, promoting equity and a favourable balance of payments), and the next step is to look at the government policies available to try and meet these objectives. The types of policies can be split into two – demand-side policies and supply-side policies. We will be focusing first upon demand-side policies, which are policies that impact upon the level of aggregate demand within an economy. These can be further split into two types: Fiscal policy and Monetary policy. We will start by looking at Fiscal policy, which is when the government uses the level of government spending and/or taxation to affect the level of aggregate demand.