Thegovernment engagement in buying goods and services, transfer ofpayments which it distribute and collection of taxes is said to bepracticing fiscal policy. is how the government spendsand puts measures to collect taxes with an aim of influencing theeconomy. Different particular groups mostly feel any change in thegovernment spending. For example, a reduction in taxes leads tofamilies having higher disposable earnings. Below is a discussion ofhow commercial policy application results in direct impact in theeconomy.
Governmentspending affects almost every sector of the economy leading to thevast supply of money in the hands of citizens through things likenational defense and entitlement programs, where they spend goods andservices purchased from legitimate businesses. Similarly, thegovernment uses a lot of money in private enterprise sectors inbuying products and services as well as subsidization of commodities.
Thiskind of economic activity leads to incredible growth in economy,especially through the creation of jobs. It is also considered themain tool during the time of recession, depression, and the hardshipsthat occur in the economy. In addition, when it comes to increase intaxation, people are left with little to spend and invest thus forcedto rely wholly on the government spending to keep the economy afloat.Decrease in taxation will increase the household disposable incomeleaving the money with the people.
Inconclusion, the government can maintain the economic objective byadjusting the rate of spending and taxation rates. In a slow economy,the government can slightly increase its spending while it isadvisable to increase tax in an overheated economy and reducespending to dampen the economy. Therefore, increase in governmentspending is likely to have a more direct impact to the economy sinceit will help in reviving different aspects of the economy such asemployment that result in the growth of the economy.