The budgetary policy of any country is to ensure that the government is running on an equilibrium of spending and collection of taxes. The aim of such a policy is to ensure that there is sufficient funds to cater for the balance of factors affecting macroeconomic stimuli of an economy. This is to be differentiated with the fiscal policy, which is mainly about government spending and taxation for the purpose of financing public projects (Sullivan & Seffrin, 2003). This paper is going to look at the effects of changes on budgetary policy, which is the ability of a nation to maintain an equilibrium in economic stability, when considering alternatives of the policy.
When dealing with the economic aspect of country economics, it is important to note that there are three major factors, among others, that are affected once there is a reconsideration of budgetary policy, namely the demand levels and overall economic activity, savings and investments within the nations economy and the level of income distribution among peoples in the country. This factors will play a large part in ensuring that the effectiveness of the equality principle is maintained in the course of economic relations of a country.
The major actors in this case are the government, the people and foreign investors as well as lenders. This is because there are three instances of policies, where one is neutral and the government is catering for all expenses from the taxes collected from peoples. Only three actors are present in this case, namely the people, government and investors. Expansionary policy is majorly invoked where there is excess government spending above the taxation that the government is earning from (Heyne & Boettke, 2002). In this case, actors include the lenders. In the confectionary policy, there is less spending than the government collects taxes. As such, the lenders are also actors in this instance because of their participation in having debts paid off.
Policy problems arise in the case where fluctuations in the economy occur without the direct effect of the government efforts, for example in the case of cyclic fluctuations in revenues from tax. This can be reflected in the overall policy of the government without necessarily arising from a change in the actual policy, and therefore blur the definitions of these terms. In such a case then, the spending would reduce and the government deficit would be altered without a change in the policy. Thus a problem arises in the proper analysis of the financial situation of a country when such changes occur, and the definitions are not so clear on the boundaries of application.
The Keynesian theory is the theory that is majorly involved in the financial planning of a country in this case, and governs the majority of theories on the subject. As such, consideration has been made on this theory, where certain changes have been seen to have an effect on macroeconomic variables (Brent, 2003). For example, the theory suggests that a decrease in government taxes and a parallel increase in public spending will stimulate the growth of the overall demand within the economy. This will be sustained when the government increases taxation and reduces spending after the economic boom has been achieved. This will eventually achieve the desired equilibrium. This is one of the methods that have been employed to ensure that there is full employment, stability in goods pricing and economic growth.
The Keynesian theory has been applied in many areas to answer the questions contained in complicated government spending and effects thereof. For example, the fiscal stimulus approach has been developed as a result of the theory, though with contestations. The effect of crowding out that is introduced by the theory is majorly under review by many scholars, where there I disagreement concerning the effect of less government spending on the increase of aggregate demand and so on. For example, one of the arguments that has come about concern the increase of interest rates once a government has had to engage foreign borrowing in order to fund deficits. This may lead to a lower rate in the aggregate demand and hence lead to the opposite of what was expected in the Keynesian theory. Such changes that may not have been foreseen by the Keynesian theory are covered in the classical and neo-classical theorists, who see that expansionary approaches decrease the rate of exports causing a depreciation in the demand for goods in the country and a subsequent depreciation in that countrys currency. The opposite would be true if the confectionary approach would be used. This is because when there is a higher rate of exports, the foreign investors will need to obtain the countrys currency in order to trade locally and thereby increase the value of the local currency.
Changes in country spending and demand rates are therefore dependent on the countrys ability to mitigate financial policy as seen in the above explanations. The major pillars of the macroeconomics of the country are thus adequately dealt with when the country is well-planned in terms of policy. Changes in the policy will affect the approach taken, whether confectionary or otherwise. As such, this will have an effect on the overall performance of the country financially.
Brent, H. (2003). The Economic Theory of Fiscal Thinking. New Jersey: Routledge .
Heyne, P., & Boettke, P. (2002). The Economic Way of Thinking. New Jersey: Prentice Hall.
Sullivan, A. O., & Seffrin, S. (2003). Economics: Principles in Action. Upper Saddle River, New Jersey: Pearson, Prentice Hall.
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