Fiscal policy FAQs

Fiscal policy FAQs

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Fiscal policy may be used by governments to influence economic activity and achieve a variety of macroeconomic goals. However, because fiscal policies might have unanticipated repercussions and distributional implications, they must be properly designed and implemented. Furthermore, it is vital to consider the long-term sustainability of fiscal policy and, where required, to combine it with monetary policy. Governments can use fiscal policy to promote economic development, stability, and a number of other goals. Here are a few commonly asked questions on this subject:

     Q1. What exactly is fiscal policy? - Fiscal policy refers to the government's use of taxation and spending to influence the quantity of economic activity in a country. It is one of the primary tools used by governments to promote economic growth, preserve price stability, and achieve other macroeconomic objectives.

     Q2. How does Fiscal Policy function? - Fiscal policy is implemented by changing the amount of taxes or government spending. When taxes are decreased or expenditure is raised, the government injects more money into the economy, which can enhance economic activity. When the government, on the other hand, cuts or raises taxes, it pulls money out of the economy, which might slow down economic activity.

     Q3. What are the primary fiscal policy tools? - Taxation and government expenditure are the two primary tools of fiscal policy. Transfer payments (such as welfare payments) and public-sector borrowing are two more mechanisms that governments might use to influence economic activity.

     Q4. What are the advantages and disadvantages of fiscal policy? - Fiscal policy has the capacity to achieve a range of aims, including economic stabilisation and growth promotion. The disadvantages of fiscal policy include the likelihood of unanticipated consequences, distributional implications, and long-term viability concerns.

Modifications in government expenditure can have an impact on people as a result of fiscal policy changes. People who use government services or programmes, such as healthcare or education, may gain instantly if the government boosts its spending on these services or programmes. Those whose lives depend on government programmes or services, on the other hand, may suffer if the government reduces its spending on them. Finally, the influence of fiscal policy on the economic system as a whole can have an effect on individuals. Fiscal policy's success in fostering economic development and stabilising the economy may result in more job opportunities and higher wages for employees. Ineffective fiscal policy, on the other hand, may result in diminished growth and financial turmoil, which may have a negative impact on individuals.