Tags: Writing Medical Papers A Practical GuideOnline Chemistry HomeworkResearch Paper HookGeorgia Teacher Of The Year EssaysArt Comparison EssayGood Essay Questions For Short StoriesViper Scan My EssayThings To Write A Compare And Contrast Essay OnEssay On Helping Mother At HomeTheir Eyes Were Watching God Critical Essay
Of course, there is controversy among economists regarding the optimal level of government intervention in the economy.However, the fact remains that government expenditure and taxation programmes exert considerable influence on national income, output and other key macro-economic variables.
Thus in terms of equation (36.3) which defines national income equilibrium we get: S G or. We also observe that this equilibrium level of national income is achieved with a government budget deficit of Rs.
15 crore, which is equal to the difference between desired saving and desired investment.
As a result the equation for the uses of the national income becomes: Y = C S T where T stands for taxes paid to the government.
Here we ignore indirect taxes as also corporate taxes.
Moreover, there is often a conflict between full employment and price level stability.
The government planners and policymakers have to make difficult but pragmatic compromises between the two social evils: unemployment and inflation.
On the other hand an exactly opposite type of fiscal action is called for when the economy is in deep depression.
So the government has to reduce taxes and/or increase its own spending.
Taxes reduce aggregate demand by reducing disposable income of the community. Government expenditure on goods and services produced in the private sector add to aggregate demand by channelling purchasing power back into the flow of spending.
It logically follows from these two basic principles that economic activity can be slowed down by raising taxes and/or reducing government expenditures.