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: -The government possesses two major fiscal tools for influencing the economy. These tools can be divided into spending tools and revenue tools. Spending tools refer to the overall government spending. On the other hand, revenue tools refer to taxes collected by the government.

Detailed explanation-3: -Taxes are a fiscal policy tool because changes in taxes affect the average consumer’s income, and changes in consumption lead to changes in real GDP. So, by adjusting taxes, the government can influence economic output. Taxes can be changed in several ways.

Detailed explanation-4: -There are three components of the Fiscal Policy of India: Government Receipts. Government Expenditure. Public Debt.

Detailed explanation-5: -The three main components of the Fiscal Policy of any country are – government receipts (revenue and capital), government expenditure (revenue and capital) and public debt.