ECONOMICS (CBSE/UGC NET)

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: -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-3: -Stabilization policy seeks to keep an economy on an even keel by increasing or decreasing interest rates as needed. Interest rates are raised to discourage borrowing to spend and lowered to boost borrowing to spend.

Detailed explanation-4: -Ministry of Finance formulates the fiscal policy.

Detailed explanation-5: -The Government controls its spending when the expenditure from the private side is high. Governments can reduce private spending by increasing taxes. This is one of the fiscal policies of the Governments to control inflation.