Fiscal Policy Essay Example | Topics and Well Written Essays - 1750 words - 1

Fiscal Policy - Essay Example Excess of government expenditure over revenue is called the fiscal deficit. Managing the budget to adjust revenues, expenditures and public debt are necessary for achieving full employment without inflation; at least it is a balancing act with such intentions on the part of the government. When the economy is in a downtrend, the need for compensatory spending by the government arises. In that case, it should be a deficit budget, and on the other hand, during times of stability and growth, the surplus budget is preferred. If the government aims full employment, which in turn is expected to reduce the level unemployment benefits given to people, budgetary balance carries less importance in the government’s policies. â€Å"†¦the president's proposals generate a federal deficit of $900 billion in fiscal 2013. If it is verified, that would be America's first deficit of less than $1 trillion since the 2008 fiscal year. It would also represent a reduction in the deficit, as a s hare of GDP, from 8.5% to 5.5%† (R.A., 2012). There are multifarious factors at play which determines the fiscal deficit and increase in government debt. The decrease in tax revenues and increase in public expenditure causes budget deficits which lead to increase in public debt. Increase in public borrowing by the government sucks the liquidity in the economy, and therefore, this should be effectively used as a tool to combat inflation and regulate the speed of the growth to avoid overheating in the economy.