ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The tools of fiscal policy also aim to stabilise the economy during various inflationary pressures. In the short term, the governments may focus on macroeconomic stabilisation by cutting taxes and increasing spending to boost a weak economy or increase taxes and reduce spending during inflation.

Detailed explanation-2: -Economic growth: Fiscal policy helps maintain the economy’s growth rate so that certain economic goals can be achieved. Price stability: It controls the price level of the country so that when the inflation is too high, prices can be regulated.

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: -As economic growth weakens, or when it is in recession, a government can enact an expansionary fiscal policy-for example, by raising expenditure without an offsetting increase in taxation. Conversely, by reducing expenditure and maintaining tax revenues, a contractionary policy might reduce economic activity.

Detailed explanation-5: -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.