Economic Status of Turkey
Governments use Fiscal Policy to achieve the three macroeconomic goals 1) stable prices, 2) low unemployment and 3) high and sustained economic growth. Implementation of expansionary fiscal policy or contractionary fiscal policy helps a government achieve these macroeconomic goals.
Expansionary fiscal policy would be the increased government spending and lowering of taxes thus resulting in an increase of the aggregate demand. Contractionary fiscal policy would be an increase in taxes and cuts to government programs resulting in a decrease of the aggregate demand. Contractionary fiscal policy is useful in times when inflation is out of control. Ultimately, the aggregate demand is affected but the aggregate supply can be indirectly affected.
Expansionary fiscal policy would be the increased government spending and lowering of taxes thus resulting in an increase of the aggregate demand. Contractionary fiscal policy would be an increase in taxes and cuts to government programs resulting in a decrease of the aggregate demand. Contractionary fiscal policy is useful in times when inflation is out of control. Ultimately, the aggregate demand is affected but the aggregate supply can be indirectly affected.
Current Fiscal Policy - Expansionary
According to an article published at www.eurasianet.org, Turkey: IMF Talks Provide Way to Gauge Ankara’s Fiscal Discipline by Nicholas Birch, Turkey’s fiscal policy is an expansionary policy with plans to increase government spending on local cities and health benefits for the people of Turkey. Turkey’s officials hope this increase in government spending will stimulate the growth of their GDP, which shrank to -5.8% in 2009. In 2009, Turkey was able to reduce the deficit by $32 billion due to “lower petrol prices and falling imports” (www.eurasianet.org). The reduction in both prices and imports should have an indirect affect on the aggregate supply causing it to increase. The aggregate supply shifted to the right because Turkey is increasing expenditures on health and municipalities.
Anticipated Effects of Expansionary Fiscal Policy
The anticipated effects of the expansionary fiscal policy will keep the inflation rate of 6.5% the same; however, the policy will help to achieve the macroeconomic goals of low unemployment and high and sustained growth. It is expected that the fiscal policy will result in a decrease in the current unemployment rate of 14.6% and an increase in the real GDP. With increased government spending on cities and healthcare, Turkey is considering a loan from the International Monetary Fund (IMF) to fund their increase in government spending. If tax revenues are not increased, Turkey’s deficit will increase which result in an increase in their debt.
According to Birch, one of Turkey’s major concerns is the black market. The IMF believes that Turkey’s black market makes up approximately one-third of the GDP (www.eurasianet.org). Perhaps if Turkey could better control the black market, more tax revenue would be generated which would be very beneficial in controlling the country’s debt.
According to Birch, one of Turkey’s major concerns is the black market. The IMF believes that Turkey’s black market makes up approximately one-third of the GDP (www.eurasianet.org). Perhaps if Turkey could better control the black market, more tax revenue would be generated which would be very beneficial in controlling the country’s debt.
