ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -This reduces the availability of funds in the money market for private firms. A lower supply of money leads to a higher interest rate. This increased interest rate will discourage private firms from undertaking investment projects, thus “crowding-out” investment.

Detailed explanation-2: -Governments could borrow money and increase spending as part of a targeted fiscal policy. An expansionary fiscal policy leads to higher budget deficits while a contractionary policy reduces deficits.

Detailed explanation-3: -When the fiscal deficit is high, there is no direct impact on the prices. When the government spends more money than what it earned during the fiscal year, then it is known as fiscal deficit.

Detailed explanation-4: -Fiscal policy is the means by which the government adjusts its spending and revenue to influence the broader economy. By adjusting its level of spending and tax revenue, the government can affect the economy by either increasing or decreasing economic activity in the short term.