Fiscal policy can be considered a powerful tool that is used by the state to regulate its economy and monitor its state. It can be determined as a set of regulations and means by using which the government of a country adjusts and controls its spending levels and tax rates to guarantee that the national economy evolves and enjoys a beneficial environment (McConnell, Brue, & Flynn, 2016). The given policy impacts all spheres or interactions presupposing monetary operations, which means that it also becomes one of the factors shaping macroeconomics. Moreover, the peculiarities and current state of the fiscal policy can be discussed by the Council of Economic Advisers, which means that this body is another aspect that might include macro.
To demonstrate how fiscal policy can shape macroeconomics, three various spheres can be discussed. For instance, speaking about the circular flow and its models, the regulations offered by the government play a crucial role here. It is a model that describes how money flows through the economy and what regulatory acts should be applied to observe the laws and establish a practical and working model guaranteeing the positive outcome (McConnell et al., 2016).
The basic components of the circular flow are savings and taxes that exist at the moment. Fiscal policy presupposes the influence on economic activities by adjusting government revenue and introducing special taxation policies. It proves the idea that fiscal policy is one of the factors directly impacting circular flow.
Failing businesses are another example demonstrating the role of this element in the macroeconomics. Taxation is traditionally one of the potent measures that can be used by the government to support some problematic areas. Lower taxes leave more money and resources for companies to evolve, improve their current status, and create the basis for their further growth (De Jesus & Correia, 2016). For this reason, tax remissions might be used to support sectors that face problems and need additional regulation. Moreover, CEA might outline fields that demand specific attention and application of modified fiscal policy regarding the current statistics and financial data.
Finally, fiscal policy is an effective tool in addressing the most problematic areas in the economy that demand immediate intervention from the government. For thriving businesses, tax regulations might be higher to ensure that money acquired from companies belonging to this cohort is redirected to create the pool that can be used to support fading or less successful sectors and provide new stimuli for their rise (Papaioannou, 2019).
CEA also remains an essential component of this model as one of its primary functions is to gather timely and relevant information about the economic developments and trends to ensure the appropriate work of all its sectors (“Council of Economic Advisers,” n.d.). Using the data provided by this body and shaping the fiscal policy, the government can directly impact macroeconomics and create the basis for its stable development.
In such a way, fiscal policy can be considered a potent tool that can be used by the government of the state with the primary aim to regulate the work of its economy and eliminate undesired trends. CEA, as an authority responsible for the monitoring of these aspects, can also be taken as a potent organization that can provide pieces of advice aimed at the introduction of some changes to avoid critical deterioration and the development of problems. The examples used above show the direct correlation between fiscal policy and the elements of macroeconomics.
References
Council of Economic Advisers. (n.d.). Web.
De Jesus, S., & Correia, M. (2016). Active fiscal policy and macroeconomic stability. Journal of Economic Studies, 43(43), 699-718. Web.
McConnell, C., Brue, S., & Flynn, S. (2016). Macroeconomics (21st ed.). New York, NY: McGraw-Hill Education.
Papaioannou, S. (2019). The effects of fiscal policy on output: Does the business cycle matter? The Quarterly Review of Economics and Finance, 71, 27-36.