ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Mandatory spending can be changed
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Lawmakers wait too long to change the policy
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Lawmakers act in voters’ self-interest
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Federal and state fiscal policies conflict
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Detailed explanation-1: -The correct answer is Interest Rate. Interest Rate does not form part of the fiscal policy of a country. Fiscal policy is the use of government revenue collection (mainly taxes but also non-tax revenues such as divestment, loans) and expenditure (spending) to influence the economy.
Detailed explanation-2: -The biggest limitation of expansionary fiscal policy is that it can cause the crowding-out effect. This occurs when the government borrows so much to fund its spending that there is a large increase in the interest rates in the economy. This leads to a fall in investment and consumption.
Detailed explanation-3: -Private Investment. Private Investment is not a fiscal policy tool. Note that fiscal policy is a tool of the government. Private investment cannot be part of the fiscal policy as the government has no direct control over said investment.
Detailed explanation-4: -There are three components of the Fiscal Policy of India: Government Receipts. Government Expenditure. Public Debt.