Essays Government Intervention Economy White Fang Essay Conclusion

Moreover, there is often a conflict between full employment and price level stability.

So the gov­ernment has to reduce taxes and/or increase its own spending.Of course, there is contro­versy among economists regarding the optimal level of government intervention in the economy.How­ever, the fact remains that government expenditure and taxation programmes exert considerable influ­ence on national income, output and other key macro-economic variables.As a result the equation for the uses of the national income becomes: Y = C S T where T stands for taxes paid to the government.Here we ignore indirect taxes as also corporate taxes.The government seeks to promote full employ­ment and price stability through its power to tax and spend, which comprise what is called fiscal policy, it refers to taxation and spending on the part of the gov­ernment. Keynes who first pointed out that the government budget can be manipulated as to increase or decrease aggregate de­mand and, through it, influence the level of employ­ment and output as well as the incomes of the pro­ducers.These are shown in the budget, whose size and balance (or imbalance) clearly indicate how much influence the government is likely (able) to exert on aggregate effective demand. Two basic principles underlying fiscal policy are the following: 1.These fiscal actions reduce the flow of real spending in the economy.They are considered to be appropriate when the economy is threatened by inflation of demand-pull variety.If the imbal­ance were in the opposite direction, it would have to be corrected by a budget surplus.Problem 4: Find the equilibrium level of income when S = -70 0.25Y = Y – T, -70 0.25(Y – 20) 20 = 40 30 -70 0.257-5 20= 70 0.25Y = 125 Y = 500 The graph for this problem is found in Problem 2.14.

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