Question

Fiscal policy refers to-

• A. Government borrowings from abroad
• B. Sharing of its revenue by Central Government with States
• C. Sale and purchase of securities by RBI
• D. Government taxes, expenditure and borrowings

Answer 1

Answer:

D. Government taxes, expenditure and borrowings

Fiscal Policy

• Fiscal Policy refers to Government's use of taxation and public spending to influence the overall level of economic activity.

• Fiscal policy involves the use of government revenue ( taxes ) and expenditure ( government spending ) to :

1. Promote economic growth

2. Control inflation

3. Stabilize the economy

4. Achieve social and economic objectives

• The two main tools of fiscal policy are :

1. Government Spending : Increasing or decreasing government expenditure on goods, services, and infrastructure.

2. Taxation : Raising or lowering taxes to alter the level of aggregate demand.

• Fiscal policy is used to :

• Stimulate economic growth during recessions ( expansionary policy )

• Reduce inflation during economic booms ( contractionary policy )

• Stabilize the economy during periods of uncertainty

• Fiscal policy is managed by the government, typically through the Ministry of Finance or Treasury, and is often used in conjunction with monetary policy ( controlled by central banks ) to achieve economic objectives.