Fiscal policy refers to the use of government spending and taxation to influence the economy.
- It is a key tool for managing economic performance, aiming to stabilize the economy by adjusting government expenditures and revenues.
- Fiscal policy can be used to promote economic growth, reduce unemployment, and control inflation.
- Fiscal policy is typically managed by the government, and it plays a crucial role in either stimulating the economy or slowing it down, depending on the prevailing economic conditions.
Types of Fiscal Policy:
1.) Expansionary Fiscal Policy:
The fiscal policy which increases aggregate demand by increasing government expenditure or lowering taxes is called Expansionary Fiscal Policy.
2.) Contractionary Fiscal Policy:
The fiscal policy which reduces aggregate demand either by reducing government expenditure or by increasing taxes is called Expansionary Fiscal Policy.
Instruments of Fiscal Policy:
- Budget
- Taxation
- Government Expenditure
- Public Borrowing
- Public works
Objectives of Fiscal Policy:
- Full Employment
- Economic growth and development
- Price Stability
- Reduction in inequalities
- Economic Stability
- Capital Formation
- Balanced Regional Development
- Development of Infrastructure
