In a republic, elected officials create Fiscal Policies to regulate the economy.
Further explanation:
Fiscal policies:
The government regulates the economy using tools of spending and taxation which combinedly called fiscal policy. Any change in government spending and taxation policy will have an impact on the aggregate demand, investments, employment and price level in the economy. The government uses fiscal policy along with a monetary policy to ensure that the growth rates and inflation rates are near the desired levels.
Impact of fiscal policies on the economy:
The government either uses expansionary fiscal policy to enhance growth or contractionary fiscal policy to cope up with inflation. An expansionary fiscal policy, government spending rises, and tax rates are reduced. It gives more disposable money in the hands of the public which raises the aggregate demand in the economy. This is followed by a rise in employment and supply to match the rising demand, which leads to economic growth. In the contractionary fiscal policy, government spending falls, and tax rates are raised. It takes away the purchasing power from the hands of public which reduces the overall demand in the economy. This helps the economy to reduce inflation.
Learn more:
1. Learn more about monetary policy
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2. Learn more about inflation
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3. Learn more about fiscal policy
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Answer details:
Grade: Senior School
Subject: Economics
Chapter: Aggregate Demand and Aggregate Supply
Keywords: in a republic, elected officials, create, regulate the economy, fiscal policies, monetary policies, aggregate demand, tools of spending and taxation, enhance growth, to cope up with inflation, overall demand in the economy, government regulates the economy.
