2. Amaliy mashg‘ulotlari 1- jadval № Amaliy mashg‘ulotlar mavzulari

Fiscal Policy 
Policy aimed at changing the level of either government spending or taxes to 
stimulate or slow down the economy is known as fiscal policy. It was invented 
by the British economist John Maynard Keynes in the 1930s. Keynes believed 
that increased demand for goods and services should be met by expanded 
production. However, after a nation's economy reaches full capacity, production 
cannot expand. If the demand for goods and services increases, prices continue 
to rise and inflation occurs. In such cases, Keynes recommended a tax increase, 

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which would reduce the demand for goods and services and relieve the pressure 
on prices. Keynes maintained that governments should use fiscal policy (tax and 
spending programs) to stabilize the economy. He said the overall level of 
economic activity depends on effective demand – that is, total spending by 
individuals, businesses, and government. According to Keynes, major 
depressions, such as the Great Depression of the 1930's, occur as a result of a 
drop in effective demand. He argued that in periods of depression the 
government should increase its spending, cut taxes, or do both to stimulate the 
economy. These steps would result in a government budget deficit (shortage). 
But Keynes said the actions could lead to higher levels of investment and 
nongovernment spending and to full employment. To understand how fiscal 
policy works, we need to understand three basic concepts. First, the deficit. 
When government spending is greater than tax revenue, we have a federal 
budget deficit. The government is paying out more than it's taking in. How does 
it make up the difference? It borrows. Deficits have been much more common 
than surpluses. This is not to say that deficits are always bad. Indeed, during 
recessions, they are just what the economic doctor ordered. Second, budget 
surpluses are the exact opposite of deficits. They are prescribed to fight 
inflation. When the budget is in a surplus position, tax revenue is greater than 
government spending. Finally, we have a balanced budget when government 
expenditures are equal to tax revenue. Thus, fiscal policy is the manipulation of 
the government budget deficit or surplus 
to influence the level of aggregate income (or GDP) in the economy. If 
aggregate income is too low (actual income is below target income), the 
appropriate fiscal policy is expansionary fiscal policy: increase the deficit, or 
reduce a surplus, which means the government spends more or takes in less. If 
aggregate income is too high (actual income is above target income), the 
appropriate fiscal policy is contractionary fiscal policy: reduce the deficit, or 
increase a surplus, which means 

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the government takes in more in taxes or spends less. 
Expansionary and contractionary fiscal policies are two basic types of 
discretionary fiscal policy. Exhibit 1 lists these types of fiscal policy and the 
corresponding ways in which the government can pursue each of these options. 
Exhibit 1