Question (1)
how do govt
use fiscal policy to stabilize the Economics in
activities of the country.
Answers
Answer:
Fiscal policy can promote macroeconomic stability by sustaining aggregate demand and private sector incomes during an economic downturn and by moderating economic activity during periods of strong growth.
An important stabilising function of fiscal policy operates through the so-called “automatic fiscal stabilisers”. These work through the impact of economic fluctuations on the government budget and do not require any short-term decisions by policymakers. The size of tax collections and transfer payments, for example, are directly linked to the cyclical position of the economy and adjust in a way that helps to stabilise aggregate demand and private sector incomes. Automatic stabilisers have several desirable features. First, they respond in a timely and foreseeable manner. This helps economic agents to form correct expectations and enhances their confidence. Second, they react with an intensity that is adapted to the size of the deviation of economic conditions from what was expected when budget plans were approved. Third, automatic stabilisers operate symmetrically over the economic cycle, moderating overheating in periods of booms and supporting economic activity during economic downturns without affecting the underlying soundness of budgetary positions, as long as fluctuations remain balanced.
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