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Fiscal Policy and VAT Video Lecture | Economics CUET Preparation - Commerce
FAQs on Fiscal Policy and VAT Video Lecture - Economics CUET Preparation - Commerce
| 1. What is fiscal policy and how does it affect the economy? |  |
Ans. Fiscal policy refers to the government's decisions regarding taxation and spending to influence the economy. It involves the use of government revenue and expenditure to regulate economic activities, stabilize prices, promote growth, and maintain employment levels. By adjusting tax rates and government spending, fiscal policy aims to either stimulate or slow down economic activity.
| 2. What is VAT and how does it work in commerce? | |
Ans. VAT stands for Value Added Tax, which is a consumption tax applied to the value added at each stage of the production and distribution chain. It is commonly used in commerce to generate government revenue by taxing the final consumption of goods and services. Businesses collect VAT from customers on their sales and remit it to the government. VAT is typically levied as a percentage of the selling price and is ultimately borne by the end consumer.
| 3. How does fiscal policy influence consumer behavior and spending patterns? | |
Ans. Fiscal policy can affect consumer behavior and spending patterns through changes in taxation and government spending. For example, a tax cut can leave consumers with more disposable income, encouraging them to spend more on goods and services. Conversely, an increase in taxes might reduce consumer spending as individuals have less money available for consumption. Government spending on infrastructure or welfare programs can also stimulate consumer spending by increasing employment and income levels.
| 4. What are the advantages of implementing a VAT system in commerce? | |
Ans. Implementing a VAT system in commerce offers several advantages. Firstly, it provides a stable source of government revenue as it is collected at each stage of production and distribution. Secondly, it promotes transparency in taxation as businesses are required to disclose the VAT amount separately on invoices, making it easier to track and audit. Additionally, VAT allows for tax credits and exemptions for businesses, reducing the tax burden on certain industries. Lastly, it helps prevent tax evasion as businesses must report and remit VAT, minimizing the scope for underreporting income.
| 5. How can fiscal policy and VAT be used to address economic recessions? | |
Ans. During economic recessions, fiscal policy can be used to stimulate the economy through various measures. Governments can implement tax cuts to increase consumer spending and business investment. They can also increase government spending on infrastructure projects or provide financial aid to struggling industries. VAT can play a role by reducing the tax burden on businesses, allowing them to allocate more resources towards expansion and job creation. These measures aim to boost aggregate demand and revive economic growth during recessions.
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