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Fiscal and Monetary Policies

 

            The question being asked is "To what extent should the Canadian Government use it's fiscal and monetary policies to narrow the rich poor gap?" First of all Fiscal policy refers to the government role in collecting taxes and spending money. When using the fiscal policy the government has the ability to increase or decrease the taxes of the citizens. The monetary policy is dealing with the amount of money that is in circulation, which means that the Government can control the amount of money available to the economy.
             The first scenario that the government could raise taxes, which means that there is a decrease in disposable income and consumer spending. Then while they do that they could lower bank rates so that the people can borrow money easier. This would work because the rich could pay their taxes, but since they are rich they do not need to borrow money, and the poor can pay taxes but it would be easier to borrow money from the banks because the interest rates are not as high.
             Another scenario is that the Government could lower taxes so there is an increase of disposable income and consumer spending. If they did that then the government could raise the bank rate so it costs more to borrow money form the banks and getting loans is discouraged more. This could work because the poor can pay fewer taxes, and the rich could pay fewer taxes. If people are paying less taxes they wouldn't need to borrow as much money form the banks because they would have more of their income to use.
             A third scenario is that the government could lower taxes so there is and increase of disposable income and consumer spending, and they could lower bank rates so it would be cheaper for people to borrow money. This could work because people are not spending as much on taxes, and if they need a loan it is easier to get the loan. .
             All three of these scenarios could work to narrow the rich poor gap. In scenario one it could narrow the gap because both people are paying more taxes, the poor can spend more money on loans than taxes and the gap could be narrowed.


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