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Fiscal Policy - Economics, UPSC IAS Exam Preparation Video Lecture | Indian Economy (Prelims) by Shahid Ali
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FAQs on Fiscal Policy - Economics, UPSC IAS Exam Preparation Video Lecture - Indian Economy (Prelims) by Shahid Ali
| 1. What is fiscal policy in economics? |  |
Ans. Fiscal policy in economics refers to the use of government spending and taxation to influence the overall economy. It involves the government's decisions on how much to spend on public goods and services, how much to tax individuals and businesses, and how to allocate those tax revenues. The aim of fiscal policy is to stabilize the economy, promote economic growth, and control inflation.
| 2. How does fiscal policy affect the economy? | |
Ans. Fiscal policy can have both expansionary and contractionary effects on the economy. Expansionary fiscal policy, such as increasing government spending or reducing taxes, is used to stimulate economic growth and reduce unemployment during a recession. On the other hand, contractionary fiscal policy, such as decreasing government spending or increasing taxes, is used to cool down an overheating economy and control inflation. The impact of fiscal policy depends on various factors such as the size of the fiscal stimulus, the timing of its implementation, and the overall economic conditions.
| 3. What are the tools of fiscal policy? | |
Ans. The tools of fiscal policy include government spending and taxation. By increasing government spending, the government can boost aggregate demand, stimulate economic activity, and create jobs. On the other hand, by changing tax rates and structures, the government can influence individuals' and businesses' spending and investment decisions, which in turn affects the overall economy. Other tools of fiscal policy include government subsidies, transfer payments, and public debt management.
| 4. What is the difference between fiscal policy and monetary policy? | |
Ans. Fiscal policy and monetary policy are two different tools used by governments to manage the economy. Fiscal policy relates to the government's decisions on spending and taxation, while monetary policy is controlled by the central bank and involves the regulation of money supply, interest rates, and credit conditions. Fiscal policy directly affects government budgets and public finance, whereas monetary policy influences the availability and cost of money in the economy. Both policies can be used together to achieve economic stability and growth.
| 5. What are the challenges in implementing effective fiscal policy? | |
Ans. Implementing effective fiscal policy can face several challenges. One challenge is the difficulty of accurately forecasting the future state of the economy, which affects the timing and magnitude of fiscal measures. Another challenge is political constraints, as fiscal policy decisions often involve trade-offs and can be influenced by political considerations. Additionally, the effectiveness of fiscal policy may be limited by factors such as high public debt levels, tax evasion, and leakages in government spending. Coordination between different levels of government and international cooperation can also pose challenges in implementing fiscal policy.
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Oct 31, 2024 Last updated |
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