Fiscal policy

Policy instruments

• The goverment can use a number of tools to help achieve its macroeconomic objectives (FEEBLS).

• These tools are called policy instruments.

• Policy instruments are economic variables such as interest rates, rates of taxation and goverment spending.

Fiscal policy

• Fiscal policy involves the adjustment of levels of taxation and goverment spending in order to influence demand in the economy.

• The goverment also raises taxes to pay for public sectors, discourage certain activity’s and distribute income more fairly and equally.

Taxes

• Direct taxes are imposed on income and profits and are paid directly to the goverment.

• Indirect taxes are imposed on goods and services and are paid to the goverment through the supplier.