Governments sometimes often encounter problems such as inflation and unemployment. Some respond the changes in taxation and government spending (fiscal policy), others with changes in money supply and interest rates (monetary policy) what are the advantages and disadvantages of these two approaches?
In this essay I will be looking at both of these fiscal and monetary policies and discuss the advantages and disadvantages of both of these policies. There are two main types of economic policies fiscal and monetary, fiscal policy is designed to stabilize the economy. This policy is used mainly to implement government expenditure and taxation. Monetary policy is based on the supply of money, cost of money and, the interest rates. This is usually prepared by the central bank or even by the government itself. Fiscal policy is taxation and government spending. This occurs when inflation hits the economy, and this policy is used to balance out the differences in the economic crisis. The reason why the government imposes taxation is because the money raised can be used to invest in schools and hospitals as well as other public services. The local taxes are used to pay for cleaning the roads, parks and, are also used to fund the council. Over a quarter of Income tax is the government’s revenue and this is one of the biggest ways the government collects the money from the public. Taxation depends on how much an individual earns ‘It is possible to earn £4,385 without paying income tax, once the amount earned is more than £4,385 income tax needs to be paid. The first £1,520 of your earnings is taxable at 10% based on the earnings of £5,905. The basic tax rate on the earnings £26,880 is 22%.’ (http://www.s-cool.co.uk/alevel/economics/taxation-and-government-spending/some-basic-principles-of-taxation.html Figures from tax year 2000-2001). This means that 22% of the income between £5,905 and £32,785 is taxable; the top level of 40% will be taxable if earnings are over...
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