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Fiscal policy refers to the policy of government regarding taxtation public expenditure and ____.
  • a)
    public debt
  • b)
    budgets
  • c)
    policies
  • d)
    deposits
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
Fiscal policy refers to the policy of government regarding taxtation p...
Fiscal policy refers to the policy of government regarding taxation, public expenditure, and budgets. It plays a crucial role in managing the overall economy of a country. The correct answer to this question is option 'B' - budgets.

Explanation:
1. Definition of fiscal policy:
- Fiscal policy refers to the government's use of taxation and public expenditure to influence the economy.

2. Components of fiscal policy:
- Taxation: It involves the collection of taxes from individuals and businesses. The government can use tax rates and policies to either stimulate or restrict economic activity.
- Public expenditure: It includes government spending on various sectors such as education, healthcare, infrastructure, defense, etc. Government spending can have a significant impact on economic growth and development.
- Budgets: Budgets represent the financial plans of the government, outlining its projected revenue and expenditure for a specific period. The budget serves as a policy instrument through which fiscal policy is implemented.

3. Importance of fiscal policy:
- Economic stabilization: Fiscal policy can be used to stabilize the economy during times of recession or inflation. For example, during a recession, the government may increase public expenditure or reduce taxes to boost economic activity.
- Income redistribution: Fiscal policy can be utilized to redistribute income and reduce economic inequalities. Through progressive taxation and targeted expenditure, the government can provide support to the economically disadvantaged sections of society.
- Demand management: By adjusting taxation and public expenditure, fiscal policy can influence aggregate demand in the economy. This can help control inflation and maintain price stability.
- Investment promotion: Fiscal policy measures such as tax incentives and subsidies can encourage private investment and stimulate economic growth.

4. Role of budgets in fiscal policy:
- Budgets act as a framework for fiscal policy implementation. They provide a detailed plan for government revenue generation and expenditure allocation.
- Budgets help in prioritizing government spending and ensuring fiscal discipline.
- They serve as a tool for economic planning and policy coordination.
- Budgetary allocations determine the availability of resources for various sectors and programs.

In conclusion, fiscal policy encompasses taxation, public expenditure, and budgets. While taxation and public expenditure are key components of fiscal policy, budgets serve as the mechanism through which fiscal policy decisions are translated into action.
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Community Answer
Fiscal policy refers to the policy of government regarding taxtation p...
The correct option is Option B.
Fiscal policy refers to the policy of the government regarding taxation, public expenditure and budget.
The objective is to find a balance between tax rates and public spending to ensure a healthy economic growth without causing inflation to rise.
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