ECONOMICS (CBSE/UGC NET)

ECONOMICS

FISCAL POLICY

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Fiscal policy can be used to achieve economic growth by:
A
Increasing government spending and increasing tax
B
Increasing government spending and decreasing tax
C
Decreasing government spending and increasing tax
D
Decreasing government spending and decreasing tax
Explanation: 

Detailed explanation-1: -Fiscal policy tools are used by governments to influence the economy. These primarily include changes to levels of taxation and government spending. To stimulate growth, taxes are lowered and spending is increased. This often involves borrowing by issuing government debt.

Detailed explanation-2: -Fiscal Balances and Growth Since there is less need to create money to finance government expenditure, the resulting inflation rates for countries with low budget deficits are often lower. Low fiscal deficits also increase the pool of savings for higher levels of investment, leading to higher economic growth.

Detailed explanation-3: -Contractionary fiscal policy, on the other hand, is a measure to increase tax rates and decrease government spending. It occurs when government deficit spending is lower than usual.

Detailed explanation-4: -Fiscal policy is the expenditure and revenue (tax) policy of the government to accomplish the desired objectives. In case of excess demand (i.e., when current demand is more than AS at full employment), objective of fiscal policy is to reduce aggregate demand.

Detailed explanation-5: -Some of the most common benefits of fiscal policy are: The fiscal policy can reduce the level of unemployment in the economy by using expansionary fiscal policies. It involves increasing government spending and real income through reduced taxes.

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