Like monetary policy, the fiscal policy also aims at controlling aggregate demand; however, here the said manipulation is done through maintaining a balance between taxation and government expenditure (Sloman 542). Since, this is not part of daily activities, it would take a longer period of time to implement and changes take place even before policies could be implemented.
Similarly, ‘deficit’ is the term used to describe when governments’ spending is more than tax collection, whereas, when less is spent as opposed to the collected amount in the form of taxes it is known as ‘surplus’ (Frank and Bernanke 443).
According to Lee, Johnson and Joyce (694), the most important tools used for the manipulation of fiscal policy are the surplus or deficit arising as a result of budgeted expenditure versus the taxes, the revenues and expenditures themselves.
Recently, as witnessed, the US economy has been the worst hit after the Great Depression, especially when we talk in terms of unemployment levels and deficits. While talking in terms of unemployment, it is believed that it would hit an aggravating figure of 9.7% (Lorber and Phillips, The Early Word: Unemployment Rate Goes Up), thus paved way by 230,000 redundant people.
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