Fiscal And Monetary Policy For Arts Industry

Fiscal policy and monetary policy are two of the tools that government uses to influence its domestic economy. Fiscal policy is the use of the government budget to affect an economy. The government could adjust its expenditure plans or change the tax rate with fiscal policy to influence the economic prosperity. Another tool, monetary policy, refers to the government or central bank managing the money supply. Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. The government cannot control inflation or influence output and employment directly; instead, it affects them indirectly, mainly by raising or lowering a short-term interest rate.

When the government decides on the taxes that it collects, the transfer payments it gives out, or the goods and services it purchases, the government is engaging in fiscal policy. There are several types of fiscal policy. For stagnation situation in the economy, the government may increase the purchases of goods and services such as starting public works. It would increase the total demands and expand real output. Furthermore, a decrease in net taxes would make people more willing to consume goods. These policies are called expansionary fiscal policies, which stimulates the economic growth. On the other hand, the contractionary fiscal policy includes a decrease in government purchases of goods and services, or an increase in net taxes, which constrains future prosperity.

In music business, when the government holds large campaigns, such as hiring performing artists for music festivals, it provides changes for artists and increases the demand of music performance. There would be more artists devoted to creating and performing because of the increasing demand. That is to say, the government increases the purchases of services as well as performances. This in turn stimulates demands and increases industry output.

On the other hand, if the government decides to raise the tax of selling entertainment goods, this would in turn affect the retail price as well. In the case of CDs, the increase in price would decrease demand, and this will dissuade consumers from purchasing CDs. This results in constraining of the economic growth of music industry.

Monetary policy focuses on money supply and interest. Monetary policy involves changing certain interest rates, either directly or indirectly. This is done through open market operations, setting reserve requirements, or trading in foreign exchange markets. The objective of monetary policy is to influence the performance of the economy as reflected in such factors as inflation, economic output, and employment. It works by affecting demand across the economy--that is, the willingness of consumers to spend on goods and services. If the government reduces the interest rate, people would be