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To achieve a balance of stable prices the government must mediate between the two. To counteract this the government decreases taxation and spending, so that consumer households have less disposable income to spend on goods and services, this decreases aggregate demand and brings inflation back down with it. In turn this puts more money back into the economy, creating more jobs and encouraging economic growth.An increase in aggregate demand leads to a higher inflation as there is more money being spent on limited goods and services, which pushes the prices up. When the government needs to stimulate the economy by increasing public spending then they will decrease taxes so that each household has more disposable income to be spent on consumer goods. There are two types of fiscal policy, Expansionary and Contrationary. ‘Governments use fiscal policy to help them to achieve their macroeconomic objectives’ Fiscal policy deals with the governments spending and taxation.
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It also decreases unemployment, which leads to further increases in income. This is a method used in a recession to stimulate the economy by providing each household with more disposable income, which can be used for consumption expenditures, which then stimulates aggregate production. Increase in government spending and/or a decrease in taxes that causes the government’s budget deficit to increase or budget surplus to decrease. It is the total demand for goods and services in an economy.
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“All planned expenditures for the entire economy summed together.” (Danny Myers, 2006, pg123) By influencing Government taxation and expenditure, aggregate demand can be stimulated to achieve Macroeconomic objectives such as price stability, full employment and economic growth. (Danny Myers, 2006, pg6) Aggregate Demand: “The built environment is made up of various types of property (residential, commercial, industrial etc) linked by infrastructure (sewers, canals, roads, tunnels etc) and separated by spaces in between (parks, woods, playing fields, landscaped areas, squares etc)”. “The production and distribution of goods and services at all levels. The fiscal measures looked at in this essay will be taken from 1990 onwards.
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Order custom essay Governements Use Fiscal Policy to Help Them Achieve Their Macroeconomic Objectives