Question

following a decrease in exports, what fiscal policy would restore the economy to the original equilibrium?

Answer 1

An increase in transfer payments from the government.

The use of taxation and expenditure by the government to affect the economy is known as fiscal policy. Fiscal policy is often used by governments to encourage robust, long-term growth and to lower poverty.

Fiscal policy is the means by which the government adjusts its spending and revenue to influence the broader economy. By adjusting its level of spending and tax revenue, the government can affect the economy by either increasing or decreasing economic activity in the short term.

Monetary policy and fiscal policy are the two major instruments available to policymakers when they want to affect the economy. The money supply is influenced by changes in interest rates, bank reserve requirements, the buying and selling of government securities, and foreign exchange, all of which are indirectly targeted by central banks.

Governments affect the economy by altering tax rates and kinds, spending amounts and types, and borrowing amounts and types. Both directly and indirectly, governments have an impact on how resources are employed in the economy. A fundamental formula for calculating national income accounting's estimate of an economy's production, or gross domestic product (GDP), based on expenditures.

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