Fiscal Policy
1 Quick Explanation 1–3 min
Fiscal policy = government's use of taxation, spending and borrowings to steer the economy.
It's the budget in action — expansionary in recession, contractionary in inflation.
2 Detailed Notes
Definition
Definition
Fiscal policy refers to the government's policy of using its revenue (taxation) and expenditure (spending, borrowings) to achieve objectives like price stability, full employment and economic growth.
Key points
Instruments
- Taxation: direct & indirect taxes — raise taxes to curb demand, cut to boost it.
- Government expenditure: spending on goods, services, welfare, infrastructure.
- Public borrowing / debt management.
Comparison
Expansionary vs contractionary
| Situation | Fiscal response |
|---|---|
| Recession / deficient demand | Cut taxes, raise spending → deficit budget |
| Inflation / excess demand | Raise taxes, cut spending → surplus budget |
Important
Monetary vs Fiscal
Fiscal policy = government (budget, taxes, spending). Monetary policy = RBI (money supply, rates). Both correct excess/deficient demand; fiscal acts directly on AD.
In One Minute
Fiscal policy = government's tax + spending + borrowing tools to manage AD — expansionary (deficit) in recession, contractionary (surplus) in inflation.
Important for Exam
- ⭐ 3-marks: instruments of fiscal policy.
- ⭐ 6-marks: fiscal vs monetary policy comparison.
- ⭐ Fiscal response to inflation/recession.
- ⭐ Objectives: stability, growth, employment, equity.
Watch & Learn
Watch on YouTubeMonetary policy & Fiscal policy. How to control inflation & Deflation ? 100% Aayega ye Must Do Topic
by Sunil Panda-The Educator
Why watch? Instruments and objectives clearly.
Open on YouTube Watch on YouTubeMonetary policy & Fiscal policy. How to control inflation & Deflation ? 100% Aayega ye Must Do Topic
by Sunil Panda-The Educator
Why watch? Clear distinction for 6-mark questions.
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