1)DEFINITIONSThe fiscal policy is at the heart of the management of the economy. It can influence the overall level of economic activity and can have a targeted impact on specific sectors of the economy such as individual industries or social groups. The fiscal policy refers to the use f the federal governmentÃÂs annual budget to affect the level of economic activity and the achievement of objectives such as internal and external balance and economic growth. Two main instruments of the fiscal policy are government spending and taxes government manipulation of the levels and composition of taxation and government spending has an impact on the following variables: Aggregate demand and the level of economic activity, the pattern of resource allocation and the distribution of incomeEconomic activity: The production and distribution of goods and services at all levels. Economic activity and expected future levels of it have an important influence on security prices because of the interrelationship between economic activity and corporate profits, inflation, interest rates, and other variables.
One frequently used measure of economic activity is the gross domestic product.
Taxation: charge against a citizen's person or property or activity for the support of governmentRevenue: the income of a government from taxation, excise duties, customs, or other sources, appropriated to the payment of the public expenses.
2)ROLE OF GOVERNMENTThe fiscal policy involves the use of the commonwealth governmentÃÂs budget in order to achieve the governmentÃÂs economic objectives. By varying the amount of government spending and revenue, the government canÃÂt alter the level of economic activity, which in turn will influence economic growth, inflation, unemployment and the external indicators in the economy. It may also lead to a reallocation of resources which changes the pattern of production in the economy as we as redistributing income within the community.
3)contribution to economic growthThe...