Fiscal policy is defined as the conscious attempt of the government to achieve certain macro economic goals of policy by altering the volume and pattern of its revenue and expenditures and the balance between them.
Introduction Objectives of Fiscal
Policy
Introduction:
Fiscal policy is defined as the
conscious attempt of the government to achieve certain macro economic goals of
policy by altering the volume and pattern of its revenue and expenditures and
the balance between them. The major economic goals of fiscal policy are to
maintain a high average level of employment and business activity, to minimize
fluctuations in employment activity, prevent inflation and to produce and
promote economic growth.
The fiscal policy is used to
control inflation through making deliberate changes in government revenue and
expenditure to influence the level of output and prices. It is a budgetary
policy. Fiscal policy is the use of government taxes and spending to alter
macroeconomic outcomes of the country. During the great depression of the 1930s
people were out of work, they were unable to buy goods and services therefore
government had to increase, to regulate macroeconomic values and money supply.
The use of government spending
and taxes to adjust aggregate demand is the essence of fiscal policy. The
simplest solution to the demand shortfall would be to increase government spending.
The government increases it’s spending through construction of tanks, schools,
highways. This increased spending is a fiscal stimulus. Economic stability is a
macro goal of the fiscal policy of a country whether developed or developing.
By economic stabilization it means; controlling recession or depression and
price stability.
Objectives
Of Fiscal Policy:
1. To
maintain economic stability in the country
2. To bring
Price stability
3. To
achieve full employment
4. To
provide social justice
5. To
promote export and introduce import substitution
6. To
mobilize more public revenue
7. To
reallocate available resources
8. To
achieve balanced regional growth.
Instruments:
The major instruments to be used
to control inflation and to achieve the above said objectives are (i) Taxation
(ii) Public borrowings (iii) Deficit financing.
Fiscal policy deals with the
government expenditure and its composition. Government expenditures are
classified into two categories as capital expenditure and consumption
expenditure. The spending on construction of road, dams and others are called
as capital expenditure. Government expenditure on consumption of goods and
services are called as consumption expenditure. The interest paid by the
government against the borrowings or national debt is called as interest
payment. Governments’ transfer of money from one sector to other is called
Transfer of payments.
Tags : Managerial Economics - Fiscal Policy
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