Get instant access to notes, practice questions, and more benefits with our mobile app.
Fiscal policy refers to the use of government spending and taxation to influence aggregate demand, output, employment and price stability. The government prepares an annual budget that shows planned receipts (income) and expenditures. By changing public expenditure, taxes and borrowing, the government can stimulate the economy during recession or control inflation during overheating. This topic covers fiscal policy meaning, budget basics, public expenditure, taxation and the multiplier effect in an exam-friendly way.
Fiscal policy is the policy of the government related to public expenditure, taxation and borrowing to achieve macroeconomic objectives.
Government budget is an annual statement showing the estimated receipts and expenditures of the government for a financial year.
Public expenditure refers to government spending on administration, defence, welfare, infrastructure and development.
Types (basic):
Taxation means compulsory payment made by individuals and firms to the government without direct return.
Access the complete note and unlock all topic-wise content
It's free and takes just 5 seconds
Download this note as PDF at no cost
If any AD appears on download click please wait for 30sec till it gets completed and then close it, you will be redirected to pdf/ppt notes page.
Fiscal policy refers to the use of government spending and taxation to influence aggregate demand, output, employment and price stability. The government prepares an annual budget that shows planned receipts (income) and expenditures. By changing public expenditure, taxes and borrowing, the government can stimulate the economy during recession or control inflation during overheating. This topic covers fiscal policy meaning, budget basics, public expenditure, taxation and the multiplier effect in an exam-friendly way.
Fiscal policy is the policy of the government related to public expenditure, taxation and borrowing to achieve macroeconomic objectives.
Government budget is an annual statement showing the estimated receipts and expenditures of the government for a financial year.
Public expenditure refers to government spending on administration, defence, welfare, infrastructure and development.
Types (basic):
Taxation means compulsory payment made by individuals and firms to the government without direct return.
Types:
Fiscal deficit occurs when government total expenditure exceeds total receipts (excluding borrowings). It indicates the borrowing requirement.
Significance:
Fiscal multiplier shows how a change in government spending (or taxes) can cause a larger change in national income.
Simple spending multiplier idea (basic):
Higher MPC leads to a larger multiplier.
From this topic
Objectives of fiscal policy include:
(Any three objectives can be written.)
Direct and indirect taxes differ as follows:
(Any three points can be written.)
Fiscal policy refers to the use of government expenditure (G), taxation (T) and borrowing to influence aggregate demand and achieve objectives such as growth, employment and price stability.
Main tools of fiscal policy are:
Example: During a recession, the government may increase public works spending and reduce taxes. This raises income and employment, and through the multiplier effect, overall output can increase by more than the initial spending.
Thus, fiscal policy is a powerful demand-management tool, but it must be used carefully to avoid high deficits and inflation.