Fiscal Policy
Refresher reading access
Introduction
Fiscal policy refers to the government’s decisions about taxation and spending, whereas monetary policy refers to central bank activities that are directed toward influencing the quantity of money and credit in an economy. Fiscal policy involves the use of government spending and changing tax revenue to affect certain aspects of the economy, such as the overall level of aggregate demand. Government deficits are the difference between government revenues and expenditures over a period of calendar time. The fiscal tools available to a government include transfer payments, current government spending, capital expenditures, and taxes. Economists often examine the structural budget deficit as an indicator of a government’s fiscal stance.
Learning Outcomes
The candidate should be able to:
- compare monetary and fiscal policy
- describe roles and objectives of fiscal policy as well as arguments as to whether the size of a national debt relative to GDP matters
- describe tools of fiscal policy, including their advantages and disadvantages
- explain the implementation of fiscal policy and difficulties of implementation as well as whether a fiscal policy is expansionary or contractionary
0.75 PL Credit
If you are a CFA Institute member don’t forget to record Professional Learning (PL) credit from reading this article.