The Government Uses Fiscal Policy Essay

1079 Words Dec 9th, 2015 5 Pages
PART 1- Explanation of the fiscal policy
The government uses fiscal policy to regulate unemployment because of the negative effect unemployment has on the economy. Unemployment negatively influences the federal government 's ability to generate income and also reduces economic activity. Few people pay taxes when they are unemployed since there are taxes in each paycheck. Also, due to unemployment individual cannot afford to spend their money on unnecessary goods and services. They are very tightfisted in spending money, therefore, they hardly buy gifts, go out to eat, or go shopping at the mall. Thus leading to decreased job growth and overall economic growth since it is more problematic for businesses to expand and make profit. The government uses as a fiscal policy tool to reduce unemployment. At times when unfortunately the level of unemployment is high and the economy needs a lift out of a recession, the government tends to lower the tax rates on businesses and individuals. The government lowers the tax rates on businesses and individuals in order to put more money into the hands of consumers so the consumers spend more thus demanding for more goods and services. When consumers begin to spend more, then the businesses may make more money and may hire more workers because of the greater demand for the products or services. The government takes this action because then people tend to pay more taxes and the government makes more revenue.
My paper is based on the Keynesian…

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