In this article, We learn about "Fiscal Policy ".Let's Go!
Fiscal policy is the way in which the government adjusts spending and tax levels to directly affect the economy.
Fiscal policy and monetary policy (the means by which central banks influence the money supply) go hand in hand to achieve various economic goals.
Fiscal policy gained popularity after being championed by British economist John Maynard Keynes in the 1930s.
He suggested that whenever a country goes into recession, putting more money in the hands of consumers could lead to economic growth. This can be achieved by reducing taxes or increasing government spending.
Various fiscal policies
The following are the three basic financial policies: neutral, expansionary, and contractionary.
The impact of fiscal policy on the exchange rate
The impact of fiscal policy on currency is highly dependent on the economic situation. Because each country is unique and the economic environment is constantly changing, it is difficult to judge exactly how fiscal policy will affect exchange rates.
Suppose the government runs a budget deficit due to expansionary fiscal policy. To cover deficits, governments can work with central banks to print new money (also known as quantitative easing).
The newly printed money can be used by the government for economic development projects. An increase in the money supply can eventually cause inflation and lead to a depreciation of the value of the domestic currency relative to foreign currencies.
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