![]() ![]() When policymakers seek to influence the economy, they have two main tools at their disposal- monetary policy and fiscal policy. More recently, countries had scaled back the size and function of government-with markets taking on an enhanced role in the allocation of goods and services-but when the global financial crisis threatened worldwide recession, many countries returned to a more active fiscal policy. With the stock market crash and the Great Depression, policymakers pushed for governments to play a more proactive role in the economy. Before 1930, an approach of limited government, or laissez-faire, prevailed. Historically, the prominence of fiscal policy as a policy tool has waxed and waned. In the communiqué following their London summit in April 2009, leaders of the Group of 20 industrial and emerging market countries stated that they were undertaking “unprecedented and concerted fiscal expansion.” What did they mean by fiscal expansion? And, more generally, how can fiscal tools provide a boost to the world economy? ![]() The role and objectives of fiscal policy gained prominence during the recent global economic crisis, when governments stepped in to support financial systems, jump-start growth, and mitigate the impact of the crisis on vulnerable groups. Governments typically use fiscal policy to promote strong and sustainable growth and reduce poverty. Governments use spending and taxing powers to promote stable and sustainable growthįiscal policy is the use of government spending and taxation to influence the economy. 5 min (1403 words) Read BACK T O BASICS COMPILATION
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