Fiscal policy is determined by the government, to determine the amount of money earned from state revenues as well as the budget to be spent on specific goals, such as to increase employment and inflation.
If we see in theory, fiscal policy is issued to influence economic activity. In contrast to monetary policy, which is more focused on interest rates and the amount of money in circulation. Because the government tries to influence the economy directly, fiscal policy has a significant effect on economic indicators.
There are two types of fiscal policy
-) Expansive fiscal policy - which aims to lower taxes and increase government spending, thereby encouraging more spending and encouraging economic activity.-) The contractionary fiscal policy - which means raising taxes and lowering the budget.
This fiscal policy theory is based on "Keynesian Economics" where economic productivity is controlled by governments that directly regulate and monitor taxes and public spending.
The effect of fiscal policy on the forex market has no direct impact. There is such a process with changes in the inflation rate that will ultimately affect the exchange rate of the currency. In the eyes of fundamental analysis, fiscal policy also influences many other factors such as employment.
When the government promises a tax reduction, it is also part of fiscal policy. In this way the government can increase economic activity. Conversely, lowering taxes can encourage more budget spending. It also helps boost market demand, and may be an indication that soon currency exchange rates will increase.
If you are a trader, let alone a long-term trader, it is good to always follow the fiscal policy development of the government. In addition to the precaution and avoid the currency trend change can also seek clues of currency exchange rate increase more quickly.
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