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Explain how fiscal policy can be used to influence both thelevel and pattern of economic activity?
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| Submitted: Tue Oct 14 2003
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Explain how fiscal policy can be used to influence both the level and pattern of economic activity? Fiscal policy involves the use of government expenditure and taxation to influence the level and composition of AD. A rise in government expenditure, or a fall in taxation, should increase aggregate demand and boost employment. The size of the resulting final change in equilibrium national income is determined by the multiplier effect. The larger the national income multiplier, the greater the change in national income will be. Fiscal policy can affect aggregate demand in a number of ways. Firstly through an increase in government spending on services such as the NHS will create more jobs and thus increase consumption as consumers now have more disposable income. A change in direct taxation such as a change in level of corporate tax on firms may cause firms to increase investment spending due to spare money that hasn't been...
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