Fiscal Policy India

Fiscal policy is the use of government spending and taxation to influence the economy. It is one of the two main tools of macroeconomic policy, along with monetary policy.

The objectives of fiscal policy in India are to:

• Promote economic growth
• Control inflation
• Reduce unemployment
• Stabilize the economy
• Reduce inequality

The instruments of fiscal policy in India are:

• Taxation: The government can raise taxes or lower taxes to influence the economy. Taxes can be used to discourage consumption, investment, or imports. They can also be used to raise revenue for government spending.
• Government spending: The government can increase spending or decrease spending to influence the economy. Government spending can be used to stimulate the economy by creating jobs and increasing demand. It can also be used to provide essential services such as education and healthcare.
• Borrowing: The government can borrow money to finance its spending. Borrowing can help to stimulate the economy in the short term, but it can also lead to higher interest rates and debt in the long term.

The impact of fiscal policy in India depends on the specific policy measures that are implemented and the state of the economy. In general, fiscal policy can be used to stimulate the economy during a recession or to cool the economy during a boom. However, it is important to use fiscal policy carefully, as it can have unintended consequences.

MCQs on Fiscal Policy in India

1. What is fiscal policy?
   • It is the use of government spending and taxation to influence the economy.
   • It is the use of monetary policy to influence the economy.
   • It is the use of both monetary and fiscal policy to influence the economy.
   • It is the use of the central bank’s policy rate to influence the economy.
   • The answer is It is the use of government spending and taxation to influence the economy.
2. What are the objectives of fiscal policy in India?
   • Promote economic growth, control inflation, reduce unemployment, stabilize the economy, and reduce inequality.
   • Promote economic growth and control inflation.
   • Reduce unemployment and stabilize the economy.
   • Reduce inequality.
   • The answer is Promote economic growth, control inflation, reduce unemployment, stabilize the economy, and reduce inequality.
3. What are the instruments of fiscal policy in India?
   • Taxation, government spending, and borrowing.
   • Taxation and government spending.
   • Borrowing and government spending.
   • Taxation.
   • The answer is Taxation, government spending, and borrowing.
4. How does fiscal policy work?
   • The government uses taxation and government spending to influence the economy.
   • The central bank uses monetary policy to influence the economy.
   • The government uses both monetary and fiscal policy to influence the economy.
   • The government uses the central bank’s policy rate to influence the economy.
   • The answer is The government uses taxation and government spending to influence the economy.
5. What are the effects of fiscal policy in India?
   • It can stimulate the economy during a recession or cool the economy during a boom.
   • It can lead to higher interest rates and debt in the long term.
   • It can have unintended consequences.
   • All of the above.
   • The answer is All of the above.